Sydney view: Doubts despite biggest profit

By GILES PARKINSON

National Australia Bank chief Frank Cicutto gave himself a gold medal last week. NAB, the country's biggest bank, had just announced the country's biggest-ever profit, of $A3.29 billion ($4.35 billion), and Mr Cicutto reckoned that was worth a gong.

He was probably right. That's a lot of profit that requires a lot of good management, a lot of fees and a healthy interest margin. And when records are broken, they deserve recognition.

But Mr Cicutto has a problem. While he gets to hold the gold medal for the sheer size of his profit, he struggles to even make the podium for most other key measures - even if it is only a four-horse race.

The net profits for the four big banks for the 2000 fiscal year have now been released and it tallies up to an awesome sum of $A9.4 billion, including abnormals. More than half of this was paid out in dividends.

In terms of size, NAB's profit was the clear winner, several body-lengths ahead of the other three, which were scattered around the $A1.7 billion mark before abnormal items.

But for return on equity and growth in earnings per share, NAB trails its rivals. These, and concerns about its strategy, particularly overseas, are the reasons NAB is now the cheapest of the big four banks on a price/earnings basis.

Although all the banks are trading at or near record highs, NAB's historic p/e ratio is just over 13 times, compared with the CBA's 16 times and Westpac's 15 times. ANZ is marginally ahead of the NAB.

The discount also reflects the fact that Mr Cicutto, despite his ability to produce a massive profit, is yet to convince the market that he can answer the questions about the bank's future growth. The market, rightly or wrongly, wants some action, and acquisitions, but Mr Cicutto is talking only of organic growth at this stage.

As Mr Cicutto struggles to have his vision understood and factored into the share price, the market is being a lot more understanding of the strategies of CBA's David Murray, ANZ's John McFarlane and Westpac's David Morgan.

Mr Murray, through his longevity and performance, is now the pre-eminent banker in Australia, while Mr Morgan has won admiration for the restructuring of Westpac's domestic business and the huge growth in home lending.

But Australia's banks are now doing more than just fighting each other. They are also trying to win the argument about the social good. Bank-bashers are back, and well-armed with gripes about bank fees, branch closures and low deposit rates.

Mr Cicutto was quizzed about it extensively at his press conference last week.

He pointed to the fact that the bank was probably the biggest taxpayer in the country, one of the biggest employers and paid more than a billion in dividends.

That may seem unremarkable for a company with the biggest profit, but Mr Cicutto thought it was pretty good.

"That's an extraordinary contribution to this country and its people, a contribution that is not matched by any other public company as far as I know," he said.

The ANZ's John McFarlane was quizzed about the same issues after his result was announced. "Well, we are trying to avoid [branch closures], but in some ways we are also trying to do the right thing by recognising the issues in the community and actually doing things to try and help it.

"Now, that's not just us, I think all the banks are trying to do that. I mean, the banks understand, the banks have got the message from the community.

"And as an industry we are now meeting to see collectively what we are going to do about it. And we are very serious about it. So don't worry, we've got the message and things are going to happen."

But he didn't say what is going to happen. And neither did the others. The low Australian dollar is making each of the banks a juicy takeover target for an acquisitive foreigner. Which would put the whole debate back in the federal Government's court.

* Giles Parkinson is deputy editor of the Australian Financial Review.