Earnings Surge Boosts St George

The Age

Thursday November 1, 2007

Marc Moncrief, With Bloomberg

ST GEORGE acting chief executive Paul Fegan has staked his claim to the top job with a clean profit result that raised the bank's shares.

Australia's fifth-largest bank booked $591 million net profit for the six months to September 30, up 8 per cent on the second half of last year. The result brought full-year net profit to $1.2 billion, an 11 per cent improvement.

The bank also announced an 86? final dividend, up from 77? last year, to be paid on December 18. The final payment brings the full-year payout to $1.68 a share.

The result hit the high end of analysts' expectations and the shares rose $1.02 to $36.35, a jump of nearly 3 per cent.

"We're particularly pleased that the acting chief executive isn't straying from his predecessor's habit of providing sound advice about the bank's future earnings," said Constellation Capital Management fund manager Peter Vann. "There are no big nasties in this result."

Return on equity (RoE), which measures how effectively a company has used its shareholders' money, hit a 10-year high of 23.2 per cent. St George has increased RoE in each of the past 10 years. Mr Fegan has acted as St George chief executive since August, when previous chief executive Gail Kelly left to lead larger competitor Westpac.

Conspicuously absent from the presentation of results was St George chief financial officer Michael Cameron. Mr Cameron, who has been away from the bank for several weeks, citing illness, was an early favourite to replace Ms Kelly.

BT Financial Group banking analyst Jack Chemello said Mr Fegan would have made a substantial contribution to the result in his previous position as head of the bank's flagship retail and wealth management operations, but the top executive behind most of the result was still Ms Kelly.

"Banks are like oil tankers," Mr Chemello said. "They burn slow.

"This result is the product of the current management team and he (Fegan) has been part of that team for a while. But in terms of his becoming the CEO, that change would not have made a big contribution to the result."

Retail deposit balances increased 10.9 per cent to $47.8 billion while federal tax reforms to superannuation withdrawals boosted managed funds by 26.7 per cent to $49.7 billion.

Revenue grew 10.8 per cent and the cost-to-income ratio declined to 42.5 per cent.

St George's share of the credit card market increased from 4.2 per cent to 4.6 per cent - a 19.2 per cent improvement - but Mr Fegan said the bank had not bought market share at the expense of quality. Bad and doubtful debts accounted for just 0.16 per cent of assets.

St George also said it would encourage shareholders to reinvest dividends by underwriting the dividend reinvestment plan. The plan was expected to raise $458 million, with an additional $400 million to be raised through another project.

Mr Fegan said the bank was shielded from the global credit crisis, as retail deposits backed 62 per cent of all retail loans. -- With BLOOMBERG

KEY POINTS

? Shares climb $1.02 to $36.35, a jump of nearly 3 per cent.

? Revenue is up 10.8 per cent as cost-to-income ratio falls to 42.5 per cent.

© 2007 The Age

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