ANZ Shares Fall Most in Six Months After ‘Underwhelming’ Result

(Bloomberg) -- Australia & New Zealand Banking Group Ltd. shares fell by the most in six months Thursday after the lender changed the way it paid dividends that will see investors pay a higher amount of tax on the funds.

The bank lowered the amount of the payout that is eligible for franking credits -- which allow Australian shareholders to reduce the tax they pay on income from dividends, marking the first time since 1999 that it hadn't covered 100% of the tax burden.

At the same time, the bank reported a fall in cash profit from its ongoing operations, lower margins, a decline in its return on equity and an increase in bad debt charges for the 2019 financial year.

Here's what analysts are saying:

Bell Potter:

• Result was ‘soft and underwhelming' with cash profit missing consensus
• Expectations of challenging conditions likely to damp ROE in medium term, capping its valuation
• Bank likely to hold onto its surplus capital, although won't cut dividends as a result
• Expect subdued operating income and higher costs to offset favorable credit impairment result
• Cut to hold from buy; PT lowered to A$28 from A$29.30

Shaw & Partners:

• ANZ has low returning Australian business and too much investment offshore, with the situation unlikely to improve ahead of New Zealand rule changes; Dividends unlikely to be fully franked in future
• FY20 likely brings little to no income growth, higher expenses growth and increased capital intensity
• “ANZ has the worst franchise of the major banks and it's making the least of its

  opportunities”

• Maintain hold; PT cut to A$26 from A$27

Citi:

• Key drivers of ‘relative outperformance' seem to have run their course as FY20 guided to cost growth resuming and suspension of share buyback
• Lender is lowering its hurdle rate to increase investment opportunities, particularly in institutional banking
• Australia to remain challenged in FY20 with performance more in line with peers
• Ultra-low rates have forced ANZ to change tack to find growth; Benign credit environment to keep payout stable and provide valuation support
• Maintain neutral; PT lowered to A$28 from A$29

Morgan Stanley:

• Downgrade cycle is accelerating amid falling revenues and rising costs; Expect consensus estimates to be lowered about 10% and dividend will be cut
• No clear path to cost base target of about A$8 billion ($5.5 billion); Morgan Stanley says will be a ‘challenge' for cost base to be less than A$8.5 billion in the time frame
• New franking base of 70% makes a dividend cut ‘more likely' in 2020, MS lowers FY20 total payout target to A$1.40/share vs A$1.60/share in FY19
• Notes strong credit quality, although only expected to offer modest earnings support
• Maintain equal weight; PT cut to A$24.80 from A$26

Bloomberg Intelligence:

• ANZ Faces Margin, Volume and Cost Headwinds: Earnings Outlook

To contact the reporter on this story: Tim Smith in Sydney at tsmith58@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda

©2019 Bloomberg L.P.