National Bank earnings show up ANZ stablemate

By PAULA OLIVER

The first glimpse of ANZ Bank's performance after its ambitious takeover of the National Bank has revealed that its local arm is being outperformed by its new sibling.

And ANZ has yet to secure regulatory approval for the first part of its integration plan - prompting some observers to question whether discussions with the Reserve Bank could become an ongoing challenge.

The update on one of the country's largest acquisitions came yesterday as ANZ unveiled a solid half-year result in Melbourne.

Most of the media and analyst focus was on the A$4.83 billion ($5.6 billion) acquisition, for which ANZ's powerbrokers have promised synergy gains of A$110 million per year within three years.

The match-up has already been shown to be an unusual one.

Figures issued yesterday showed that ANZ's local arm reported a half-year profit to March 31 of A$173 million, down from A$176 million in the same period last year.

It was hit hard by lower interest income in the mortgage business, and by the exchange rate.

In contrast, the National Bank made a much larger profit of A$150 million ($170m) for the four months since it was acquired by ANZ.

The two brands are being kept separate to prevent customer flight.

ANZ's takeover of the National Bank was expected to cause substantial customer losses - partly because the ANZ had been a poor performer in customer service surveys.

But ANZ's chief operating officer, Dr Bob Edgar, yesterday displayed a graph showing that customer numbers were rising for the National Bank and the combined entity.

It also revealed, however, that ANZ was still losing customers every quarter - and had been for a year.

The bank's top brass was keen to reinforce the positive trend.

"First of all, it's not so much an issue of customer loss. There's been very little customer loss in either ANZ or the National Bank in New Zealand," Edgar said. "It's far more a question of customer acquisition."

ANZ had spent significant money and time refurbishing its branches, opening new stores and upgrading staff skills to turn around its New Zealand problems. It had also modified its fee structures, which Edgar said were "harming our franchise".

The early signs were encouraging, he said.

The integration of the two banks is reliant upon the approval of the Reserve Bank of New Zealand.

It has a requirement that a New Zealand bank should be able to continue to operate as a standalone business under local statutory management if its parent hits trouble.

ANZ chief executive John McFarlane yesterday said a two-phase plan of integration had been submitted to the RBNZ for approval.

The first stage would hopefully be approved by a target date of June 30.

Then, activities that were not "systems dependent" would be rapidly amalgamated.

Phase two of the plan was the complete integration of the two banks, which got nearer the RBNZ concern that crucial parts of the business would be taken offshore.

McFarlane said he was confident that the plan would meet the RBNZ's requirements.

There was a hint yesterday that wrestling with the RBNZ had not been as easy as expected.

ANZ's presentation said more technology processing than expected would be undertaken in New Zealand because of the requirements.

McFarlane also emphasised that the RBNZ's stance had hardened.

A note issued by Standard & Poor's rating agency after the result also predicted that the RBNZ could remain an ongoing challenge and focus for ANZ, which could impact on integration plans and synergies.

The numbers

Six months to March 31, 2004

* ANZ (NZ) net profit: A$173m

* National Bank net profit (four months): A$150m

* Acquisition and integration costs: A$96m

* Group net profit: A$227m, up from A$176m last year (pro forma)

* Mortgage lending volumes up 5% at ANZ (NZ), and 11% at National

* Deposit volumes up 1% at ANZ (NZ), and 2% at National