THE DISTILLERY: ANZ's good omen

ANZ Banking Group's interim results pushed the lender's share price up 6 per cent to an all-time high. The all-time high is less a symptom of Mike Smith's Asian superbank strategy and more a reflection of the drive for yield. Yesterday's share price surge was a good sign for the coming results from its rivals. So when will that Smith strategy kick in?

Firstly though, The Australian Financial Review's Andrew Cornell notes, as many commentators do, that as the first of the big four banks out of the blocks for this interim-profit season, ANZ has reassured the market that the other three will at least release some acceptable numbers.

"ANZ Banking Group chief executive Mike Smith told me this morning he felt some of the strong result reflected a more benign industry environment but two elements of it, growth in Asia and cost reduction, were strongly ANZ. Critically for investors, ANZ also delivered on its promise to smooth out dividend payments through the year and indeed posted a higher than expected payout. Bad debt charges were down, return on equity was up, revenue growth solid and margins off just slightly. It may not be enough to return ANZ to market darling status but it should be enough to pacify those who were starting to have second thoughts about the bank."

The Australian's Richard Gluyas writes that Smith answered the "clarion call" for yield, resulting in the share price surge.

"If only running a major bank were that simple! In truth, there was a fair bit of heavy lifting behind yesterday's move to hike the interim dividend 11 per cent, lift the payout ratio from 67 per cent to the top end of the 65-70 per cent range, and pledge to maintain full-dividend franking despite a growing Asian business. If the board thought any of Smith's figures were rubbery, or had doubts about the longer-term sustainability of the half-year profit, then capital management would have been out of the question. So, if this looks like a creditable result, with most of the key metrics heading in the right direction, then it probably is."

Much of the concern around the banks naturally rests on the overall sluggishness of the Australian economy. If it stalls, the banks stall. The Australian's John Durie writes that Smith was trying to keep things upbeat yesterday.

"'There is a lot of noise at present about where the Australian economy is heading,' he said. 'My view, however, hasn't changed since I arrived back in Australia five-and-a-half years ago. I'm bullish about Asia and about Australia's future. We need to remember that the Asia-Pacific is still in the best-performing part of the global economy, and at present Asia, excluding Japan, accounts for more than 20 per cent of global GDP.' They were well-timed comments and hopefully will be noted by some of the doomsayers in the business community. The message is that the boom has changed from price to volume, so while opportunity costs may be large the main game is still there for the foreseeable future."

But the discussion around ANZ is inevitably focused on Smith's Asia strategy and there are two business writers in particular that aren't so convinced. Let's start with the kinder assessment from The Australian Financial Review's Chanticleer columnist Tony Boyd.

"ANZ chief executive Mike Smith says he is only halfway through a transformation of the bank’s back-office administration that takes full advantage of its major investment in operational centres of excellence in Asia and elsewhere. Smith has a luxury of revenue growth thanks to a sterling performance in ANZ’s market division. But his cost-cutting is what every chief executive in Australia must do these days in response to flat or declining revenue. The core of the ANZ result was greater efficiency, and it is using the proceeds of this to invest in the growth markets of Asia. However, the granular detail of the results show that doing business in Asia is becoming more competitive."

Now for the less complimentary conclusions from Fairfax's Adele Ferguson.

"Cash profit from the Asia Pacific, Europe and America region came in at $460 million, up 3 per cent from the previous corresponding period and down 11 per cent in the previous six months. This makes its New Zealand operations a bigger contributor to overall earnings. Asia's contribution to the region's profit was $301 million, which represents less than 10 per cent of the bank's total earnings. The brutal reality is Smith's Asian growth strategy, which he launched years ago, has been a drag on the bank's overall return on equity of 15 per cent, which makes it a depressing influence on the group's share price."

And finally, in the spirit with which we left off, Business Spectator's Stephen Bartholomeusz sets the scene for the coming banking results.

"Later this week Westpac will produce its March half result and then it will be National Australia Bank’s turn to reveal how well it has executed its push to improve its productivity. For the foreseeable future, in an environment of fragile business and consumer confidence and weak demand for credit, evaluations of the majors will be heavily focused on their performance on costs. ANZ has got this round of bank reporting off to a very solid start."

In other company news, The Australian's Bryan Frith shines a light on a not-so-usual M&A practice from GrainCorp and Archer Daniels Midland where the target takes a relevant interest in itself for a period of time. It's a practice known as a 'disposal standstill'. Read it!

The Australian Financial Review's economics editor Alan Mitchell takes the unique approach of giving the Gillard government the benefit of the doubt concerning the budget's bottom line, just for the sake of argument. It's an argument that doesn't last long.

And finally, Fairfax's Elizabeth Knight passes on the likely frustration felt at Sydney's Sofitel Hotel by the 350 attendees of the Executive Women's Australia inaugural leadership symposium, which witnessed an off the cuff address from treasurer in waiting Joe Hockey.

It was a charming demonstration of his chops as a good guy that wants the best for women in an equal society. He has a daughter after all.

But in terms of a politician delivering on policy, it was a non-event.