Yesterday ANZ reported a -14% decline in cash earnings (cash earnings is what you need to pay attention to) and a -16% decline in cash eps for 1H08. A lot of that had to with the sharp increase in loan loss reserves which was flagged to the market back in February.
At that time I raised the prospect that ANZ could see close to $1 billion dollars in loan loss reserves in FY08. That was a big underestimation on my part as they took close to the $1 billion in the first half alone.
It would be easy to dismiss this result as due to provisioning against a couple of one off credit exposures, however that is the nature of the business and particularly as we approach a turning point in the credit cycle. This comment from CEO Michael Smith should be taken as a warning sign of things to come:
"The global environment is challenging and in areas like retail sales we are seeing early signs of a downturn in our domestic markets,"