ANZ chief Shayne Elliott issues warning as cash profit slides 18pc

Shayne Elliott says ANZ will step back from aggressive growth as the bank puts its $4.5bn wealth arm up for sale.

ANZ’s Shayne Elliott: “It’s OK to just step back a little bit from aggressive growth for now”. Pic: Michael Perini

ANZ chief Shayne Elliott has warned it is a “time to be more cautious” about chasing loans as the bank put its $4.5 billion wealth arm up for sale and shrank its balance sheet, feeding into an 18 per cent slide in annual profit.

In a messy result marred by writedowns and charges from the group’s restructuring efforts that included shedding 3598 jobs, ANZ today reported a $5.9bn cash profit for the year to September 30, down 18 per cent but in line with analysts’ watered-down expectations.

The final dividend of 80c, payable December 16, met expectations and increased the full-year payout to $1.60.

During the year, ANZ’s restructure of the institutional division that services big companies and government entities reduced credit risk weighted assets by $21bn, contributing to a 46 per cent slump in divisional profit to $1.06bn.

ANZ’s Australia division, the group’s biggest earner, also grew revenue just 1 per cent in the second half as home loans increased a small 2 per cent to $247bn. According to the Australian regulator’s official data, ANZ’s overall lending growth of 1.2 per cent for the six months to September 30 was the weakest of the big four and well below the broader market’s 3.2 per cent expansion.

Mr Elliott said he’d told Fred Ohlsson, the boss of the Australia division “it’s OK to just step back a little bit from aggressive growth for now”. He also flagged that the group’s bad debt charges would hold steady as a proportion of gross loans.

“We have changed our risk appetite, we’ve accepted this is a time to be more cautious about growth from a risk perspective,” he told analysts today.

“So we’ve seen some pretty aggressive pricing out in the marketplace and we’ve taken a view and we’ve been really clear with Fred and the team that it’s OK to just step back a little bit from aggressive growth for now.”

Addressing the media afterwards, Mr Elliott added that the bank was taking a cautious approach to mortgage lending following steep price rises in major markets and higher underemployment hurting customers’ income.

In recent trade, ANZ shares were up 1.6 per cent at $27.62.

UBS analysts said there were few surprises in the result after the bank’s recent disclosures and applauded the rundown of institutional assets.

Mr Elliott said the institutional loans would probably decrease a further $10bn this year as lower returning exposures are run down and more profitable clients are targeted.

Despite the institutional run off, ANZ flagged that bad debt losses would be flat at around 34 basis points of gross loans. But he said the actual dollar figure of impairments may be lower depending on moves in the balance sheet, after spiking to $1.96bn.

“While in aggregate the credit environment is broadly stable, pockets of weakness continue to work their way through the economy, largely reflecting stress moving through the resources and resources related sectors,” the bank said.

“The stress appears to have now largely passed through the institutional market and is progressively moving through the commercial and retail sectors.”

ANZ also took $1.1bn of charges for “specified items” related to Mr Elliott’s reshaping of the group since taking the reins from Mike Smith in January. It has included shrinking low-returning institutional assets, culling staff numbers down to 46,544 — from 50,152 a year ago — and reducing the group’s exposures in Asia.

On Monday, ANZ unveiled the sale of its retail and wealth operations in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank for a $265m loss, to instead solely focus on the core institutional business in 15 markets across the region.

After a separate six month review of the Australian and NZ wealth businesses, the bank today unveiled plans to cease manufacturing life insurance and investments products and just distribute other providers’ offerings.

“The initial focus will be on the Australian wealth business where ANZ is exploring a range of possible strategic and capital market options that will maintain strong outcomes for customers. This includes the possible sale of the life insurance, advice and superannuation and investments businesses in Australia,” the bank said.

“The wealth business in New Zealand will be considered separately during 2017.”

Last year, the Australian wealth division suffered a 24 slide in cash profit to $327m, hurt by lower funds management income and the business’s relatively high exposure to life insurance amid higher claims and policy lapses that are affecting the broader industry.

Rival National Australia Bank recently sold 80 per cent of its life arm for $2.4bn, but retained the broader investments business including superannuation, platforms, advice and asset management.