April 30, 2019 / 10:17 PM / 5 months ago

UPDATE 3-Australia's ANZ to slash cost base as staff cuts boost H1 profit

* CEO vows to cut expenses by over 16 pct by 2022

* Cash profit of A$3.56 bln in first-half 2019, up 2 pct

* A 5 pct employee reduction helps offset sharp decline in margins

* Cash profit beats analyst estimate, shares higher (Recasts with cost cuts, quotes from Elliott on New Zealand and analyst)

By Paulina Duran

SYDNEY, May 1 (Reuters) - Australia and New Zealand Banking Group Ltd on Wednesday promised more than A$1 billion ($705.2 million) in cost cuts by 2022, driving up its share price as staff cuts helped boost first-half profit above market expectations.

ANZ shares were 3 percent higher in afternoon trading, helping lift the sector as investors welcomed the promised cuts which amount to over 16 percent of the bank’s operating expenses in the 12 months to March.

“Despite ongoing investment, we will continue our intense focus on costs,” ANZ Chief Executive Officer Shayne Elliott told analysts at its earnings call, without providing details of where the axe would fall.

“All else being equal, in 2022 we expect to run this bank for less than A$8 billion, with a global workforce and branch network to match.”

ANZ is Australia’s third-largest lender and the first of the country’s “Big Four” banks to release earnings for the six months ending March 31.

It said staff cuts had helped lift first-half cash profit 2 percent to A$3.56 billion ($2.5 billion), although interest margins fell to their lowest level in more than a decade.

The cash profit, which omits one-off items and is the most closely watched metric, compared with A$3.49 billion a year earlier and was slightly above analysts polled by Reuters.

“A key new positive here is that ANZ has now gone from what was an inspirational target, to an actual target to have a cost base below A$8 billion by 2022,” said Jarrod Martin, a banking analyst at Credit Suisse.

The planned cuts come as a margin squeeze suggests hikes in home loan rates by Australia’s top banks have failed to stabilise a decline in profitability, a trend exacerbated by the steepest fall in property prices in a generation.

Elliott said ANZ was resisting taking higher risks to increase margins and expected underlying pressures such as competition and slow loan growth to continue.

ANZ’s net interest margin (NIM) from continuing operations — the difference between what interest costs and what it earns — fell 13 basis points to 1.80 percent during the six months ended March 31, the lowest since at least 2005, Refinitiv data shows.

The sharp decline in NIM was only partly offset by a 6 percent increase in assets, which the bank said was mainly due to higher institutional lending and home lending in New Zealand, driving net interest income slightly lower at A$7.3 billion.

About 5 percent of ANZ home loans were in negative equity - owning more than the value of the property - at the end of March, and mortgages more than 30 days past due rose to about 2.25 percent during the half, from 1.8 percent in September.

Operating expenses fell 2 percent compared to the same period a year ago, mainly driven by a 5 percent reduction in full time employees to 39,359 people.

The result also included a new A$175 million customer remediation-related charge, raising such remediation charges since 2017 to A$928 million.

Australia’s four top lenders have already set aside more than A$6 billion to cover remediation for wronged customers since a government-backed inquiry uncovered widespread misconduct last year.

In New Zealand, where ANZ dominates home lending, Elliott said he was prepared to make tough decisions after the central bank proposed to almost double the minimum tier 1 capital requirement for banks.

“Its our intention to be active ... but we cannot expect our shareholders to unreasonably subsidise those ambitions,” he said.

$1 = 1.4180 Australian dollars Reporting by Paulina Duran in Sydney. Additional reporting by Rushil Dutta and Devika Syamnath in Bengaluru; Editing by Stephen Coates

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