Bank of Queensland shares took a couple of tough bits of news in their stride yesterday, closing up 8c at $9.85 after the bank confirmed a sharp fall in interim earnings and the surprise impending loss of long time CEO David Liddy.
Mr Liddy, who’s been at the bank for 10 years apologised for revealing his departure on the day of the poor profit report which showed a 45% drop in net after tax earnings $50.4 million.
The bank said "normalised" cash earnings fell 41% to $57.6 million.
Mr Liddy will be stepping aside when his contract expires at the end of this year.
The company has started a search for a replacement.
Despite the profit fall, shareholders will receive an unchanged interim dividend of 26c, although only earning 24c a share in the half.
The decision to maintain earnings is a signal of the board’s confidence that the slump is temporary.
Mr Liddy told a briefing that a significant increase in bad debts linked to the poor weather in Queensland was largely responsible for the slump.
"Many of which were of a one off nature including the recent weather events. I’m pleased to announce that our underlying performance increased by 14 per cent," he said.
"Integration of both the CIT and St Andrews businesses is now complete.
"Both acquisitions are delivering results above expectations.
"Our expense disciplines have continued to hold with the cost income ratio in line with our guidance."
However, Mr Liddy said in a statement that he was "obviously disappointed to make this announcement at the same time as such a disappointing profit result".
"However, I thought it was important to give the board enough notice to ensure a smooth and successful recruitment process for the benefit of our staff and shareholders.
The bank’s chairman, Neil Summerson said, "The board was grateful David agreed to stay on and guide the bank through the tumultuous GFC period, and he has positioned the bank as a key competitor in today’s highly competitive market and ready for its next wave of growth".
The profit fall wasn’t unexpected: the bank warned last December that its commercial property loan exposures would cut the expected increase in profits in 2011 by $20 million.
It then followed that warning with another in February that another $35 million had been cut from its earnings guidance given the string of natural disasters were driving loan losses higher.
And as expected, shares in Leighton Holdings slumped yesterday after trading resumed following the fund raising and big writedowns and $907 million loss announcement on Monday.
Trading in the shares had been suspended since last Thursday afternoon.
They dropped more than 16% yesterday morning before recovering a little to close off 13.8% at $24.93, down $4.01 on the close a week ago.
It was the lowest the shares have been for 20 months.
Significantly the price didn’t get near the $22.50 issue price for the capital raising; the low yesterday was $24, meaning that big investors are still supporters of the stock.
Leighton said the institutional offer raised $514 million, with 98% of eligible institutions taking up their entitlements.
Seeing Hochtief took up just over $400 million of the shares, local institutions didn’t have to put their hands too deeply into their clients pockets to support the issue.
Leighton’s German parent, majority shareholder Hochtief, has elected to take up its full entitlement.
About half a million new shares were snapped up in the institutional shortfall bookbuild at $24.50 a share.
Leighton’s chief executive David Stewart said in the statement, “There was strong support for the capital raising from both local and overseas investors, as well as existing and new investors".
"The proceeds from the capital raising will be used to strengthen Leighton’s balance sheet and provide the financial flexibility to pursue the many growth opportunities available to the business and support investment grade rating metrics," Mr Stewart said.
Leighton now expects to make a full-year net loss of $427 million, but analysts and investors have raised concerns of more writedowns to come, and some have questioned whether the $757 million capital raising will be enough.
The retail component of the capital raising, expected to raise $243 million, will open on April 19.
That’s more than institutions put in and will be the real test for the company’s reputation after the debacle of the changeover of chief executive and then the writedown in February and the huge earnings hit earlier this week.
Retail shareholders will be able to subscribe for one new share for every nine they own at $22.50.
