The banks mixed bag

At $1.49bn, the net profit after tax before abnormals was also a record for ANZ, up 22% on last year's result, delivering a fully franked 30-cent final dividend that bought dividends for the year to 56-cents, franked to 77%. What was even more impressive was that the result was based on a 9.5% drop in revenue to $5.96bn.

The company also announced that it will buyback up to $500m worth of its own shares, perhaps as many as 48 million, adding at least 3% to the earnings per share forecasts for the year to 30 June 2000. Most would agree that Managing Director John McFarlane has been doing a good job, tightly controlling costs and reducing the company's risk profile. Just like the other banks, the ratio of non-interest income to total income has also steadily increased. And there's a little dot.com spur with the creation of alliances with E*TRADE and ERG, all of which should help to raise interest in the company and help the bottom line next year. ACCUMULATE.

NAB flounders

In contrast, the National Australia Bank was a disappointment, although there aren't many companies that could turn a profit of nearly $3 billion and take a thrashing for it. The result was more in line with our most recent forecast of $2.8bn made in issue 40 (Accumulate - $22.23) but the expectation was for an extra $200 million or so and the share price fell 4% immediately after the result was announced as a consequence. With revenue increasing by just 1.3% to $19.6bn, a rise in costs and a 7% tumble in fourth-quarter profits, that these high expectations just couldn't be met.

So, is this antipathy misplaced? We think so, yes. Profits from international activities accounted for just under half group profit and non-interest income continued to rise, both are good signs that things aren't going bad. A final dividend of 58-cents partly franked at 79%, bringing the full year dividend to a record $1.12, franked at 89.5% should ease the pain a little, although there was no sign of a special dividend and a planned share buyback has been put off.

And if the excess cash on its balance sheet isn't being used for a buyback, then perhaps an acquisition is on the horizon - the last time the company dipped into its pocket was back in 1997 when it acquired the US mortgage originator Homestake.

Over the last six months almost $5 has been wiped off the share price and this result didn't help sentiment. But we do not see it as a fundamental change in the fortunes of what has been an outstanding investment in the past. We remain confident about NAB's prospects and watch this space for news of an acquisition. LONG TERM BUY.

Westpac pleases

Just when it seemed that everything was going wrong, Westpac got it right with a brilliant profit result. Net profit after tax before abnormals was 5.6% higher than last year at $1.46bn with revenue actually dropping by 4% to $10.5bn. This in itself was a good effort. An increase of 21% in transaction fees helped boost the bottom line as did tighter cost controls. A hearty final 24-cent dividend will be paid, bringing dividends for the year to 47-cents, franked at 50%.

What we really liked was the ground covered during the second half as management continued to push down costs and drive return on equity to higher levels. Since our last full review in issue 39 (Hold - $9.44) the share price has risen nearly 12.5% but we don't believe Westpac's full potential is reflected in the current share price. In issue 41 ($10.20) we told subscribers to hold pending the result but, having now analysed it, we rate the company a BUY closer to $10.00.