ANZ Bank

ANZ has announced its first quarter result (it has a 30 September year end), with underlying net profit increasing 4.1% to $1.5bn compared to the same period last year. With higher funding costs reducing ANZ’s profit margins in Australia by nine basis points, varying mortgage rates independent of the Reserve Bank is a sensible move.

The big four banks’ ability to pass on higher costs to its customers shouldn’t be underrated, but with mortgage lending growth slowing to levels not seen since the seventies ANZ has eliminated 1,000 jobs from its 24,000-strong workforce to help preserve profit margins.

Having increased its proportion of deposit funding, ANZ’s subordinated debt offer discussed on 20 Feb 12 (Avoid – $100) is the next step toward reducing the company’s reliance on overseas wholesale funding. But this has a marginal impact at best, which is why we recommend having no more than 5% of your portfolio in total exposed to a combination of ordinary shares and income securities issued by ANZ.

The share price has barely moved since Big banks & the Basel hoax Pt 2 from 9 Nov 11 (Hold – $21.89), and we’re sticking with HOLD.