A sign of things to come from the Bank of Queensland’s poor result and dividend cut when the ANZ, NAB, and Westpac report their interims early next month?
BoQ shares fell more than 5% on the news of the four cents a share dividend cut – to a still solid 34 cents a share – after the regional bank’s first-half result confirmed an earnings downgrade earlier this year.
Acting CEO Anthony Rose said the cut “reflects the challenging revenue and cost environment that BOQ and the industry face.”
With that comment and a warning of increased costs this half from new regulatory moves, investors will wonder if the same pressures will show up in the interim results from the ANZ, NAB, and Westpac.
There have already been signs in the Commonwealth’s December half figures and in trading updates from Westpac and the NAB, as well as the ANZ.
Following the February profit warning, the bank revealed an 8% in cash profits to $167 million in the first half to February 28.
Statutory net profit after tax fell 10% to $156 million. Mr. Rose said profits for the second half were “unlikely” to be any better.
Its net interest margin – the difference between the interest it earns from loans and what it pays to fund them – fell by three basis points from the first half of 2018 1.94%.
At one stage shares in the company dipped by 50 cents, or 5.3%, to a low of $8.91 on Thursday, approaching the six-year low that followed February’s damaging earnings downgrade. The shares strengthened slightly to close at $8.95, down 4.9%.
That left them down 7.7% so far this year.
Mr. Rose told investors that the bank’s impaired loans were in a solid position:
“Impaired assets have continued to reduce, down seven percent in the half to 152 million dollars or 33 basis points of gross loans. Housing arrears remain below industry averages, which we believe reflects our more conservative approach to responsible lending,” he said in yesterday’s briefing.
He also warned investors of higher costs in the current half, saying the bank expected new regulatory obligations would lift operating cash expenses in the second half of the year – which are predicted to rise from $268 million to between $280-285 million.
But he admitted there was “significant room for improvement” at BoQ’s retail division.
“We do have a plan to address these challenges with a number of initiatives already underway which are all ‘must do’ priority activities,” Mr. Rose said.
“We are also conducting a critical segment by segment analysis to identify opportunities that will sharpen our focus, simplify the way we do things and improve the long term value creation for our customers and shareholders.”
He nominated the bank’s mobile banking app and online banking experience as current barriers for customers.
Mr. Rose said the bank’s second-half earnings were unlikely to improve from the 1H19 level, though he was encouraged by a stronger performance across BoQ’s niche businesses.
“Although the headline numbers are disappointing and below our expectations, there are a number of positives worth noting and we see a number of opportunities that we believe will improve BOQ’s long term return profile.
“Strong growth in Virgin Money, BOQ Finance and BOQ Specialist show there is good momentum in these parts of the business and our niche business strategy is delivering.
“Our asset quality metrics remain resilient, reflecting the conservative approach we have been taking for a number of years – and our capital position continues to be strong,” he said.
And in a research note, yesterday Macquarie analysts said that the NAB and ANZ remain the most attractive major banks from a valuation perspective, while Bendigo & Adelaide Bank and Bank of Queensland appear very expensive.
“We believe it is useful to consider relative banks valuations in the context of normalised earnings, adjusting for differences in capital positions, sustainability of earnings and payout ratios,” Macquarie analysts said in the note.
“Our valuation analysis supports our medium-term preference for ANZ and NAB over Commonwealth Bank or Westpac, and we continue to prefer the majors to the regional banks.”