Shayne Elliott is saying no to dividend payments for now. ANZ may reconsider in August depending on how things go – but don’t bank on it.
Once weve paid out a dividend, its hard to get it back, he declared. Perhaps that passes for banker black humour right now.
NAB announced on Monday that it would cut its interim dividend to 30¢, a payment costing it $800 million, while it also raised $3.5 billion from institutional and retail shareholders. Westpac will clarify its version of the balancing act in its results announcement on Monday.
But ANZ chairman David Gonski was particularly determined to stick to the strictest interpretation of the regulators letter of caution on dividends, even though Elliott described it as less of a “directive than a direction”.
Shayne Elliott is still prepared to predict it will take three to five years for employment to fully recover.
This does come with the proviso that deferral means the question of payment can be reconsidered when the extent of economic pain becomes clearer along with the June quarter figures.
What all Australian banks do share is complete uncertainty about how much worse economic conditions will get in the short term despite all that elaborate modelling.
In ANZs base case, for example, the economy contracts by 13 per cent this quarter while unemployment rises to 13 per cent although with a modest improvement to a 4.7 per cent contraction and 9 per cent jobless rate by the end of 2020. As Elliott points out, this is a very grim outlook even if this scenario suggests growth of 4.7 per cent next year.
The bank has also modelled the possibility of a much more severe downturn. To the ire of some bank analysts, ANZ chose not to reveal details of this extremely gloomy scenario because it might be misleading.
This is not a formula where you bang a few numbers in and hey presto, the answer comes out, he said.
Elliott is still prepared to predict it will take three to five years for employment to fully recover.
Even if the economy opens up the reality is the economy will look very different and a lot of companies sadly wont be viable, he said. The economic crisis and the impact on the banks will be with us longer than after normal conditions are resumed. There will be a lag effect and it will be significant.
One immediate result is that ANZ has already allocated an additional $1 billion to cover the impact of the coronavirus, contributing to a 60 per cent fall in its cash profit for the six months to March 31 relative to the previous year.
About 10 per cent of ANZs home loan customers have asked for six-month interest payment deferrals on $36 billion worth of loans and 15 per cent of its business customers with $7.5 billion of business loans have done the same.
But the initial rush of deferral applications will also mean a surge in a simultaneous expectation of normal repayments resuming in September when many households and businesses will clearly not be in any better shape.
According to Elliott, the bank increased lending to big companies by $8 billion as larger ones gave themselves the safety of extra liquidity to be used as needed. In contrast, any surge in lending to small and medium-sized companies was not as big as imagined.
The government had initially hoped billions of dollars worth of government-guaranteed cheap loans provided to the banks would entice more SMEs to borrow to get through the crisis. Not surprisingly, most have been reluctant to take on yet more debt in such difficult times.
What has been most remarkable, Elliott says, is the ability of corporate Australia, from big to small companies, to reduce operating costs as a way of moving into survival mode. He expects many costs wont be allowed to creep back, leading to leaner organisations and productivity gains being baked in.
For most businesses, however, that remains a highly optimistic view of their immediate future. For every company such as Fortescue Metals Group reporting yet another set of extremely strong results and profits for the March quarter on Thursday, there are many more in a highly uncertain survival mode.
Different states are slowly beginning to ease some of their tougher restrictions ahead of a more comprehensive review by the national cabinet in the week beginning May 11. But while Donald Trump still insists the US economy will rebound strongly in the December quarter, in time for the November election, Scott Morrison no longer enthusiastically talks about the Australian economy bouncing back in six months.
He knows theres no back-to-normal in sight for banks or most other businesses.