ANZ retail costs chop profits

John McFarlane

The cost of trying to turn around ANZ's retail business in New Zealand cut into the ANZ National Bank's half-year profit.

ANZ National Bank is a subsidiary of Australia's ANZ Banking Group.

Profit from the ANZ retail business fell 2 per cent to A$103 million ($111 million) in the six months to March 31, compared with the previous six months.

"Investment in trying to turn around the blue brand [ANZ] pulled down the overall New Zealand result," said ANZ Group finance chief Peter Marriott. He would not detail the size of the investment.

ANZ also blamed lower mortgage margins resulting from the pre-Christmas price war when major banks offered loans marginally above the cost of funds, and reduced fee income.

Overall, after-tax profit rose 5 per cent to A$306 million from A$291 million.

National Bank's retail, corporate banking and rural banking profit rose 12 per cent, 15 and 6 per cent respectively, with higher volumes offsetting lower margins.

Net interest income rose 3 per cent to A$713 million and operating expenses increased 2 per cent to A$463 million.

Chief executive John McFarlane said the New Zealand results were "on plan" and a better second half was expected.

ANZ bought the National Bank from Britain's Lloyds TSB for $5.5 billion in December 2003. It booked A$25 million of integration costs in the half-year.

The bank said $98 million of an expected $220 million of integration costs had been met so far.

But Marriott said the costs of meeting Reserve Bank compliance might increase "modestly".

McFarlane said the bulk of the work needed to make sure ANZ National could operate in New Zealand on a stand-alone basis was done.

"Practical completion" of the integration programme remained on track for the year's end. But there had been "a lot of surprises" on the New Zealand regulatory front.

ANZ National's home loan book grew in the March quarter by $1.3 billion to $36.1 billion.

Net loans and advances rose to $64.6 billion from $62.7 billion.

ANZ National's quarterly profit was $192 million, versus $180 million in the three months to December 31.

Subsidiary UDC Finance's profit fell 11 per cent to A$17 million because of the cost of exiting franchisee arrangements.

ANZ National's total potential liability from a dispute with Inland Revenue over structured finance transactions has risen to $268 million, from $249 million.

The Government is legislating against these deals, which have enabled banks to borrow money overseas, channel it through New Zealand and invest it overseas to obtain tax benefits.

Marriott said this meant a $40 million annual reduction in income for ANZ.

Custom culture
Problem
Only 52 per cent of ANZ residential customers were satisfied with the bank's services, placing it last in a University of Auckland bank customer satisfaction survey in October 2003. ANZ was equal-last with Westpac in business customer satisfaction.

Solution
ANZ has since removed honour fees, hired 200 new "customer-facing" staff, opened five branches and refurbished others in an attempt to improve customer satisfaction.