ANZ, economy weather storms

THERE are a series of important messages for investors and about the state of both banking and the broader economy in the ANZ result.

It will be very interesting to see whether they are confirmed by the NAB today and by Westpac next Monday. The fourth and biggest of the big four, the CBA, is the only June balancer and its full-year report is three months away.

The first, most important, and overall message is that after the battering the banks have taken over the past year – in particular, the collapse in the property market and the bruising from the Hayne Royal Commission – this bank was still making a very solid profit and the banking business was just fine.

A subsidiary implicit message is that there is little sign – so far – of the much anticipated ‘disruption’ from non-banks, like most notably Blockchain, disrupting anything much at all: whether bank business, margins or bottom line profit.

That said, the ‘new normal’ for big bank profitability is now pretty clearly down – to the low double-digits. ANZ managed to tick its return up ever so slightly – into that supposedly much tougher bank environment – to 12 per cent.

The CBA has always done better and in the post-Hayne post-property market continues to do better, at least so far. In the December half its return was 13.8 per cent.

These are not high returns. Indeed, given bank gearing, they are extraordinarily low. I repeat: we are getting very good service, without overall gouging (as opposed to specific) from our banks.

NAB and Westpac are both more exposed to ‘Hayne’ and ‘property’ than ANZ, thanks to ANZ’s flirtation with an Asian future, which had cost it return and which it has now abandoned.

The second message is that the big banks have been able to broadly absorb Hayne; again, at least so far. That’s, absorb both in terms of direct costs of remediating customers for past sins and also the changes imposed on them.

Third message relates to the property market collapse. What collapse?

Yes, CEO Shayne Elliott was grumpy about home loan demand “slowing significantly” and mortgage loans in difficulty ticked up – but just very slightly and only to 1 per cent of all loans.

All the other indicators actually improved.

New impaired assets dropped 8 per cent, the group’s loss rate dropped marginally (from an already all-but insignificant level) and the total provision charge for the half – against potential bad and doubtful debts, the statistic that most points into the future – also dropped, by 4 per cent.

Now, maybe there’s a financial tsunami building over the horizon but there’s no sign of it in the ANZ statistical seismics.

This also delivers a broader message: that so far the slump in the property market has not had a huge negative impact into the wider economy.