ASB announces NZ$10 mln loss in half year on tax case; no dividend paid to parent

ASB, which is owned by Commonwealth Bank of Australia, reported a NZ$10 million net loss in the six months to December 31 after a big tax bill for structured finance transactions, a slight tightening of net interest margins and a near doubling of bad debt costs. Commonwealth bank's full half year profit results (pages 26-28) show ASB's cash net profit after tax was A$138 million in the six months to December 2009, down 33% from A$206 million in the same half a year ago, but up from A$126 million in the half year ended June 30, 2009. Here is CBA's full presentation to analysts. ASB said its net interest margin fell by one basis point (0.01%) in the six months to December from the six months to June. Downward pressure on the interest margin came from higher funding costs and increased competition between banks for local deposits, ASB said. Bank funding costs are under pressure, partly because of the Reserve Bank's push for banks to have more stable long term and local funding, and partly because of a global shortage of funding. ASB's loan impairment charges almost doubled to NZ$127 million in December from the year before. Total provisions stood at NZ$340 million, compared to NZ$157 million in December 2008. Total provisions represented 0.53% of total assets at December, from 0.4% in June, ASB said. ASB paid ordinary dividends of NZ$70 million to its New Zealand holding company, but did not send any dividends across the Tasman to CBA: "with our parent committed to supporting its businesses in New Zealand, especially during these challenging times, no dividends were paid across the Tasman to the Commonwealth Bank of Australia," it said. However, ASB then said it had lifted its salary freeze placed on employees paid over NZ$50,000 "With the emerging recovery in the economy". Here is the full release below from ASB:

During a period when the global recession has severely impacted banks around the world, ASB's long-standing commitment to providing excellent service, with an emphasis on understanding customers' needs, has assisted the Bank to deliver a solid underlying after tax operating profit of $199m for the six months ended 31 December 2009. This is a 16.4% drop from the same period in 2008 ($238m), before taking into account the one-off additional tax charge. In December the Bank reached a settlement with the Inland Revenue relating to four structured finance transactions, agreeing to pay $264m in tax and interest charges. ANZ National, BNZ and Westpac also entered into settlement agreements at that time. $209m of this settlement amount impacts the Taxation expense charge in this period, resulting in an overall net loss of $10m after tax for the half-year. The higher cost of funding together with ASB's determination to continue to offer competitively priced deposits to local savers, intensified downward pressure on margins. As a result, ASB's net interest margin on interest bearing assets decreased marginally by 1 basis point from 1.64% in June 2009 to 1.63% in December. The market experienced a marked fall-off in demand for borrowing during the year to December 2009, with the Bank's total assets decreasing marginally by 1.1% to $64.6b. Over the same period, the Bank's lending balances grew by 3% to $54.1b as ASB continued to support New Zealand households and businesses during this difficult time. During the year to December 2009, home loan balances increased by 3.2% to $38.3b, with market share remaining steady at 23.3%, while Rural, Commercial and Corporate lending was up 2.5% to $13.5b. Total deposits increased to $57.6b, up almost 1% since December 2008. ASB's success in retaining and attracting new funding is reflected in the 2.9% growth in retail deposits to $31b, with market share remaining steady at 21.4%. This is a very pleasing result, as the support of local investors is crucial to New Zealand's ongoing recovery from the recession. The increase in our pool of retail deposits has resulted in a slightly increased fee of $18.5m being paid to the Government for the Retail Deposit Guarantee Scheme. As expected, the impacts of the recession have also resulted in increased loan impairment charges across all asset classes; partially offsetting ASB's lending growth. The Bank lifted its loan impairment charge by $60m to $127m compared to December last year. Total provisions on the balance sheet now stand at $340m ($157m in December 2008). Provisions still represent only 0.53% of total assets (0.40% in June 2009). For the six month period ordinary dividends totalling $70m were paid to ASB's New Zealand holding company, although with our parent committed to supporting its businesses in New Zealand, especially during these challenging times, no dividends were paid across the Tasman to the Commonwealth Bank of Australia. ASB is focused not only on its financial strength and stability, but also on its vision to be world class for its customers, colleagues and community. Our commitment to our customers is demonstrated by the ASB job creation fund, which aims to provide lending to New Zealand businesses to create new employment opportunities or prevent people from losing their jobs. This is especially important in the current operating environment. Since its inception in February 2009, $72.4m of loans have been approved, along with $30m of associated lending, either saving or creating almost 900 jobs in our New Zealand communities. In addition, we are seeing real tangible success through the work of ASB's Financial Help Team, which assists customers confronted with financial difficulties. Since its establishment in April 2009, the Financial Help Team has assisted almost 700 customers, with borrowings totalling $200m, covering a range of issues from spending patterns and budgeting to reorganising accounts to suit changing customer needs. For our colleagues we have delivered on our commitment to make no redundancies as a result of the recession. We have kept jobs at home in New Zealand. No jobs have been sent off-shore. We are absolutely committed to maintaining this no-offshoring policy. With the emerging recovery in the economy, in December we also lifted the salary freeze we had in place for our ASB people earning over $50,000 per annum. We are committed to maintaining our $10m annual investment in our local communities through our numerous community partnerships. In August, ASB threw its support behind children in need through the Big Night In Telethon, which helped raise more than $2m for KidsCan StandTall. As the banking partner for this event, ASB played a valuable role in providing over 500 volunteers to help raise the funds to provide children around New Zealand with basic necessities. Our most recent community initiative has been a drive to improve financial literacy through the launch of GetWise, a free, independently delivered financial literacy programme available now to New Zealand primary schools. Other notable community partnerships include our $2m per annum support of the ASB Community Trust and our major support of the work of the Order of St John, helping this essential service provider with their mission to save lives in local New Zealand communities.