Judo Bank tipped to report profit squeeze despite cost cuts

Neobank business lender Judo is expected to report a profit crunch when it unveils its full-year earnings next week, despite efforts by the bank to slash costs.

Judo Bank CEO Chris Bayliss.

Neobank business lender Judo is expected to report a profit crunch when it unveils its full-year earnings next week, despite efforts by the bank to slash costs in what insiders have claimed is a gutting of key functions.

In a note to investors, Goldman Sachs analyst Andrew Lyons said cash earnings from ASX-listed Judo were expected to come in 5.5 per cent lower, down $4.1m from the lender’s results last year.

Mr Lyons said Judo was expected to deliver $69.3m in cash earnings, with the bank facing challenges over its margins.

He noted no dividend was expected, and said the lending spread on loans in the small and medium enterprise space had not been as competitive as “has been observed in mortgages over the past 12 months”.

He said these would be a “slight tailwind” to Judo in the second half.

But Mr Lyons said Goldman Sachs continued to monitor Judo’s exposure to borrowing costs, with the bank attempting to increase its deposits funding.

Goldman Sachs said net interest margins were expected to come in at 2.89 per cent.

Mr Lyons said he was “cautious” around Judo’s asset quality, noting he was keen to hear commentary from the bank around which regions and industries were facing stress.

“We highlight that the key driver of outsized loan losses for the banking system in times of economic stress has historically come from business lending, and we note while the current macro is improving, there remains a ­material amount of uncertainty,” he said.

Former Judo Bank CEO Joseph Healey. Picture: John Feder

The Goldman Sachs analyst also pointed to Judo’s guidance, noting the bank was on track to achieve a 52 per cent cost-to-­income ratio.

But Mr Lyons said he was keen to see how higher inflation was feeding through to the lenders’ expenses.

This comes as Judo continues to slash its headcount across the bank after flagging cuts to staff numbers in May as part of a broader restructure of the lender.

Judo told investors in May it was “making some changes to its operating model” after a two-year upgrade of its core platforms.

This will see the bank make 42 of almost 600 staff redundant. It also announced plans to hire 27 new staff, including 11 bankers.

“As a result of continued scaling, as well as progress made with technology and automation, the bank has identified some non-customer facing roles that are no longer required,” Judo told investors at the time.

“These changes will allow Judo to recruit more relationship bankers, continue growing into new regions, and further invest in the bank’s growth agenda.”

These cuts were announced as Judo told investors its founding chief executive Joseph Healy would be handing control to deputy CEO Chris Bayliss.

But sources said they represented the gutting of Judo’s technology operations teams under chief operating officer Lisa Frazier, who announced she would leave the bank on June 13.

The shares closed down 0.74 per cent at $1.36.