ANZ warns on profits due to credit crunch, shares dive

SYDNEY (Reuters) - Australia and New Zealand Banking Group (ANZ) (ANZ.AX) warned profits would fall sharply and forecast more than $1 billion in bad debt charges as the global credit crisis started to hurt the country's previously buoyant banks, sending its shares down more than 13 percent.

ANZ shares ended Monday trade down 10.9 percent at A$15.81, their biggest one-day percentage fall since October 1987, after it said it would take A$1.2 billion ($1.1 billion) in provisions in the second half.

The write down by ANZ came only three days after top lender National Australia Bank (NAB.AX) announced A$830 million in credit-related losses, citing rapid deterioration in the United States housing market.

Though the moves have dented the aura of invulnerability to the credit crisis that had surrounded Australia's banks, analysts said the worst could now be over.

"It's like getting the cancer out of your system. Hopefully this is the end of it," said Michael Heffernan, senior client adviser and strategist at Austock Stockbroking.

"The home mortgage business in the U.S. is creating all the problems. They lent to people who couldn't pay it back. Not all is lost. These are provisions, if they do get some money back that will be positive next year. Anything they get back will be a bonus."

ANZ said 2008 cash earnings per share will likely fall between 20 percent and 25 percent on the previous year as a result of the rise in credit impairment costs.

"That is a dramatic downgrade in cash EPS," Argo Investments banking analyst Christopher Hall said.

"They are being prudent, they are not impaired in this statement. They are raising collective provisions in case things really go pear-shaped," Hall said.

ANZ said its 2008 cash profit was likely to be over A$3 billion and it expected to maintain its full-year dividend at 136 cents per share.

Analysts polled by Thomson Reuters Estimates had previously expected ANZ's full-year cash profit to fall about 5 percent from the previous year to A$3.71 billion. Cash earnings are effectively core profit excluding one-off items and non-cash accounting items.

While ANZ said its underlying business was performing well, particularly its personal banking and Asia businesses, significantly higher mortgage interest rates and higher food and petrol prices were weighing heavily on consumers and businesses.

Australian banks are also facing rising costs of funding amid the global credit crunch, squeezing their margins and prompting them to lift their mortgage rates to around 9.5 percent.

"In most Western countries the game has changed in banking ... the deterioration in the global credit market is still playing out," Chief Executive Mike Smith said in a briefing following the announcement.

"We still see the impact on the financial systems in the U.S. and the UK, and it would be naive to suggest that somehow Australia would be immune."

ANZ said it continued to maintain access to global capital markets despite volatile conditions, and was planning to raise about A$30 billion in term debt in 2009.

Smith said he anticipated the bank would have to pass rising funding costs on.

With growth in many Asian markets, ANZ said it was confident it could continue its Asia strategy, but had not made as much progress as it would have liked. Earlier this year it lost out in a bidding war for Hong Kong's Wing Lung Bank.

The bank said it had no direct exposure to U.S. subprime mortgages, and no direct exposure to subprime collateralized debt obligations (CDOs). Its commercial property exposure was about A$26 billion, or 8 percent of the total book.

The bulk of the latest provisions related to commercial property clients and securities lending.

It did not identify the commercial clients, but ANZ is among the main local bankers to Centro Properties Group NCP.AX one of Australia's highest profile casualties of the credit crunch.

Centro, which owns 700 U.S. shopping malls, is under pressure to sell assets to help funds, after receiving several extensions on the repayment of A$2.8 billion in debt.

The writedowns at two of Australia's largest banks have come to the notice of the government, with Treasurer Wayne Swan calling a news conference on the issue.

Swan said he had spoken to corporate regulators and the country's central bank over the weekend about Australian banks and their exposure to bad debts.

"What this announcement from the ANZ shows is we are not immune from developments in global financial markets," Swan said.

"But we shouldn't lose sight of the fact that we do have a strong, well regulated banking sector, which is capable of withstanding the fallout from these international developments."

($1=A$1.05)

(Additional reporting by Victoria Thieberger and Miranda Maxwell; Editing by Jonathan Standing & Kim Coghill)