Bendigo Bank Profit To Fall

  Shares in regional banker, Bendigo and Adelaide fell more than 8% yesterday after it cut earnings guidance for the June 30 financial year by more than 20%.The bank blamed the recession and the higher cost of funding and other pressures from the financial crunch.Investors chopped 66c from the share price, which closed at & #36;7.39 after the downgrade was released in the morning; the losses earlier in the day had been closer to 10%.Directors said they now expect cash earnings of between & #36;205 million and & #36;218 million for the financial year ended June 20. & quot;This reflects the challenges faced by the bank in the first nine months of the financial year, and the efforts to reshape parts of the business, & quot; Bendigo said in the statement to the ASX yesterday.The bank had said in February when releasing its interim results that it planned to increase cash earnings per share from last financial year's 93.7c. & #160;The profit range revealed yesterday represents between 70c and 75c per share, the company said.The interim itself was a poor result: the regional lender said first-half profit dropped 27% on charges for bad debts and costs associated with its & #36;1.9 billion acquisition of Adelaide Bank.The new profit estimate is at least 10c a share below the consensus figure of analysts' expectations, who had estimated a full-year profit of around & #36;255 million after the interim result.There was further bad news for shareholders, who were told the next dividend would effectively be cut with the current payout ratio of 60 to 70 per cent of earnings being applied to the lower earnings figure.In contrast, Bank of Queensland, the country's other major regional bank, saw its shares rise more than 5% yesterday to & #36;9.50 ahead of its interim profit announcement on Thursday.Goldman Sachs JBWere is expecting a solid result from the Bank of Queensland.They said yesterday that & quot;Whilst we would expect BOQ to see some rises in impairments, with its skew towards home lending we would expect this to be small relative to major bank peers. The market remains concerns over its provision coverage. & quot;We would expect the stock to trade poorly if we see a significant increase in impairments, particularly any commercial property exposures. & quot;In addition, if provisions remain too flat, we would expect the stock to trade poorly due to concerns around a future rise in provisions. & #160; & quot;We are expecting to see strong margin decline (-13bp) driven by an increased cost of funding from wholesale government guaranteed debt, term deposit flows and competition. Any concerns around further margin decline could see BOQ trade down. & quot;The rise in BOQ's share price is perhaps a sign the market isn't as worried about its outlook as it has become about Bendigo's.Bendigo managing director Rob Hunt said in the statement that the bank was well positioned to manage the difficult conditions faced by all Australian banks. & quot;We have taken decisive action to protect this bank from the risks posed by the current banking environment,'' Mr Hunt said. & quot;And we have placed the bank in the best possible position to take advantage of any improvement in market conditions and confidence. & quot;While we expect to see continued volatility and uncertainty in global financial markets, we believe Bendigo and Adelaide Bank is in an ideal position to weather these conditions and provide lasting sustainable returns to our shareholders. & quot;Business lending arrears continue to track higher, but the majority of growth relates to four loans already disclosed in the December half. & quot;Unsecured consumer lending represents a very small part of the overall lending portfolio, and arrears levels remain low. & quot;Margin lending credit quality remains exceptional, with no provisions or write-offs to the end of March. & quot;Funding continues to be constrained, reflected by a significant increase in the cost of retail and wholesale deposits, the bank said.It has found it tough to raise funds internationally and is depending on its retail base.Assets such as residential mortgages have not been re-priced in line with the increased costs, which has in part contributed to a & quot;continued deterioration in net interest margin'', it said.Securitisation costs continued to fall as a proportion of total funding, Bendigo said, and this is expected to reduce the overall impact on net interest margin in the future.(That's because securitisation of home loans and other receivables has stopped because of the credit crunch.)During the March quarter Bendigo's tier one capital increased to 8.12%, while total capital reduced to 10.75%.The bank complained that it could not pass on the full cost of funding its residential mortgage portfolio to borrowers because of & quot;political pressure & quot; to cut home loans in line with the 4% cut in interest rates since September.Bendigo said it was talking to the Federal Government about the impact of the funding guarantee, which makes it harder and more expensive for lower-rated banks like Bendigo to raise money from the markets to support its own lending.Directors said the bank's credit remained sound, reflecting the low risk nature of its lending book and exposure to well-secured residential lending. & quot;The bank has completed the structural changes required in its balance sheet to deal with today's market conditions. & quot;Retail deposits now represent nearly 90 per cent of on-balance sheet funding, with strong growth being experienced every month since June 2008 - well before the creation of the Government Guarantee. & quot;More than 86 per cent of maturing accounts are currently being written to new Term Deposits within the bank, while more than 95 per cent of all maturing funds are being retained within the group funding structure. & quot;These factors are providing the bank with certainty of funding and the flexibility to take advantage of future opportunities, & quot; directors said. & #160;  

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