Safe as houses: ANZ wins the tick it craves so badly

Both Standard & Poor's and Fitch threw their support behind ANZ's move, even though analysts cut their forecasts for the bank's expected cash profits for the current financial year to as low as $3.09 billion, as a consequence of the higher provisions.

The two agencies also indicated they did not expect ANZ to come through with any further such significant increases in credit provisions during the last two months of its 2008 year.

Fitch said that ANZ's decision to set aside just over 1 per cent of its risk-weighted assets of $249 billion - equivalent to $2.7 billion - to cover possible write-offs, was a "prudent" step in light of the deteriorating economic conditions in Australia and New Zealand.

Nonetheless, S&P said that though the bank's rating provided some extra room for further credit provisions if they were needed, its buffer to absorb any further loan book deterioration had been "significantly eroded".

Its credit standing - which helped underpin its ability to raise funds at cheaper rates - would come under pressure if the bank needed to put extra charges in place, the agency added.

ANZ now had the highest provisions of the big four banks. But the increase of $2.1 billion since the beginning of this calendar year would result in a 20 per cent to 25 per cent cut in its cash earnings per share when it reported its 2008 results in October.

While banking analysts followed through with a series of earnings downgrades as a result of Monday's move, there was some comfort for ANZ. Deutsche Bank said Monday's announcement confirmed ANZ's status as "the highest-risk major bank" but pointed to the positives of continued revenue growth and better profit margins.

Credit Suisse saw the move as cleaning up the bank's balance sheet by the chief executive, Mike Smith, to make the most of any economic recovery.

Meantime, the market's focus is switching to the two major banks yet to signal additional provisions - Commonwealth, due to report expected profits of $4.6 billion next month - and Westpac.

Commonwealth's shares yesterday lost $1.77 in a 4 per cent fall to $39.33 while Westpac was down only 12c to $20.21.

ANZ held its to 28c or 1.8 per cent to $15.53 after Monday's 11 per cent decline, but NAB continued to suffer after its Friday profit warning, falling $1.02 or 3.9 per cent to $24.78.