UBS: ANZ's results point to strength at the expense of earnings power

Photo: Fiona Goodall/ Getty.

ANZ Bank’s first half earnings points to the lender opting to shore up its balance sheet at the expense of earnings power, UBS said.

“The key message was that underlying revenue was weak as the company strengthens its balance sheet,” UBS analysts Jonathan Mott and Rachel Bentvelzen said in an investor note after ANZ posted a 23% rise in cash profits for the six months ended March 31. “Cost performance was solid.”

While headline revenue was flat, ongoing income dropped 1.5% from the previous six months after stripping out the accounting changes for sale of assets and gain on disposing an office building, the analysts noted.

This chart from ANZ shows the bank’s operating performance:

ANZ said operating income was down 3% to $9.99 billion but this was offset by lower expenses, down 14% to $4.73 billion and a 20% drop in bad debt charges.

ANZ says the result reflects further benefits from a significant reshaping of the business to create a simpler, better capitalised and more balanced bank with key metrics such as return on equity and capital ratio climbing.

Still, its net interest income, a key measure of lending efficiency, dropped as did net interest income, the difference between interest earned on loans and interest paid on deposits.

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