THE DISTILLERY: Numbers game

Jotters cast a sceptic eye on the context for strong bank results, with one warning the figures could mask underlying risk.

Australia’s business commentators have continued unpacking the banking results, with just Westpac Banking Corp to go. The Australian Financial Review’s Andrew Cornell makes a good point this morning that the consistently solid numbers don’t truly reflect the real risks that threaten the banking sector. Two other commentators take a closer look at the numbers for ANZ Bank, the latest to report.

But first, The Australian Financial Review’s Cornell delivers a piece that really stands out from the ‘steady as she goes’ tone that’s been obvious in most other lending commentaries this reporting season.

"The trading updates for both National Australia Bank and ANZ Banking Group were also solid regardless of the market response to them – which is primarily a matter of relative performance against peers and market expectations in the weeks before the result. Yet none of these positive factors, no matter how well Ian Narev and his peers run their shops, can be taken for granted. As Narev said last week, when credit growth was running in the double digits, it not only allowed for a less firm hand on the tiller but overwhelmed volatility in disparate parts of the business, like credit trading, which are now more evident.”

That’s not to say that the banking numbers haven’t been impressive, there’s no denying that. It’s just a worthwhile point to make that things can change very quickly.

Meanwhile, The Australian’s Richard Gluyas takes the eye of a sceptic to ANZ’s latest numbers, at least when it comes to the Asian super-regional strategy of chief executive Mike Smith.

"At ANZ, Smith has worn out a lot of shoe leather extolling the virtues of his super-regional strategy, and the initial reticence about a model premised on high revenue and expense growth has largely dissipated. If there was a problem with yesterday's quarterly result, up 6.2 per cent from $1.44 billion to $1.53 billion, it was the perception that, while the same forces were at work, they were pulling in the opposite direction. In other words, the headline number was sound, but it was driven more by Smith taking the cleaver to costs than ANZ's differentiated exposure to higher Asian growth.”

Business Spectator’s Stephen Bartholomeusz is also on the ANZ numbers, pointing out the new word that has come to define this lending reporting season.

"‘Solid’ is the new descriptor for the major Australian banks’ financial performance and, like Commonwealth’s half-year result earlier this week, ANZ Bank has produced a solid first-quarter performance. In fact that is the term Mike Smith used to describe the 6.2 per cent rise in profit to $1.53 billion. Given the modest levels of credit growth in the domestic system and soft economic settings, anything more than a mid-single-digit increase in earnings would not only enrage the big bank critics but trigger some warning bells about the levels of risk-taking within the sector.”

Elsewhere, Fairfax’s Malcolm Maiden delivers a typically astute and commendable piece on the inquiry into Australia’s fastest growing, but poorly understood, form of gambling – sports betting.

"Paradoxes abound in the gambling industry. Despite the age-old line that Australians love having a punt, they don't much care for it, for example. According to the Centre for Gambling Research in 2003, 77 per cent of Victorians agreed with the proposition that gambling did more harm than good. It didn't matter much whether they actually gambled or not: 85 per cent of those who didn't gamble believed that it was a community negative, but 75 per cent of those who gambled did, too.”

Meanwhile, Fairfax’s Elizabeth Knight reports on the phone call between Independent MP Andrew Wilkie to Fortescue Metals Group founder and chairman Andrew ‘Twiggy’ Forrest, where the Tasmanian apologised to the Western Australian for supporting the mining tax despite the Pilbara superstar’s warnings.

Fairfax’s Michael West reminds readers that the rejigging of the Resource Super Profits Tax into the Minerals Resource Rent Tax was a political manoeuvre in the wake of Julia Gillard’s rolling of Kevin Rudd. Why should we be surprised that the resulting revenue that it has raised is unimpressive?

The Australian’s economics correspondent Adam Creighton runs through the consequences of a global currency war. There are many, though we heard over the weekend from finance ministers in Moscow that all out war is not on. The Herald Sun’s Terry McCrann does more or less the same thing, albeit from the Australian perspective.

The Australian’s economics editor Alan Mitchell is also on currency depreciation this morning, but from the perspective of Japan.

Fairfax’s Ross Gittins continues to lift the lid on the amount economists don’t know.

In company news, The Australian’s Barry Fitzgerald says the challenge now for Rio Tinto chief executive Sam Walsh is to actually deliver on the promise of greater value for shareholders.

And finally, The Australian Financial Review’s Chanticleer columnist Tony Boyd explains how Australia’s corporate watchdog is attuned to pressure on investment banks to release their research early to certain market players.


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