SGB st george bank limited


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    St George lifts dividend to keep out NAB
    By Anthony Hughes
    May 8 2002

    St George Bank has steeled itself against a possible takeover bid later this year from National Australia Bank by delivering a sharply higher interim dividend and promising another round of cost cutting to maintain growth.

    The steep writedowns of dot com investments last week, primarily $72 million off the value of Wealthpoint, meant the bottom line fell from $173 million to $157 million.

    But higher home lending and the growth of funds administration arm Sealcorp allowed the regional bank to post a 41 per cent rise in net profit, before significant items and after preference dividends, of $244 million.

    The bank's board showed its confidence in the future by increasing the dividend from 31c to a better than expected fully franked 38c and promised an even better final dividend. The interim is payable July 2.

    St George's shares closed 6c down at $19.54, not far from its $19.69 high reached last week, after an early sell-off to $19.20.

    Many investors are still betting on a takeover after its restrictive articles of association on individual shareholdings expire on July 1 this year.

    NAB, which is expected to report a $2 billion interim net profit tomorrow, is considered an increasingly keen suitor despite difficult-to-fathom rumours that it might sell its strategic stake of just under 10 per cent.

    In her first major outing as new managing director, Gail Kelly, said: ''Who knows what might happen over the next year or the year after ... I really do welcome the opportunity that July 1 will soon be here and we can get on with business as usual."

    Ms Kelly said a takeover bid would have to be ''a very big cheque" but would be ''considered and recommended if deemed appropriate".

    Salomon Smith Barney's Mike Macrow said the result was strong but might represent ''peak cycle earnings".

    ''The price is primarily where it is because of takeover speculation but we struggle to see how [a bidder] can make the arithmetic work," he said.

    The bank expects to maintain the current level of profits in the second half despite a probable drop-off in home lending. It expects tighter margins in lending due to rising wholesale rates but expects to offset this by more cheap deposits and hedging.

    Head of strategy Peter Clare will head a revamped but yet to be detailed cost-cutting program titled ''Even Better Bank" to offset fear that profit growth will stall after this financial year. The new plan will include outsourcing and streamlining the head office. No decisions had been made on job cuts.

    St George has also promised to tighten its policy on deferred expenditure, an accounting treatment that may have artificially boosted its bottom line in recent years.

    The half-year accounts show a $12 million increase in computer costs, of which $9 million was an increase in amortisation of $73 million in computer expenses deferred to future results as part of ''Best Bank" rather than expensed upfront.

    Ms Kelly told analysts she was ''not happy" with the high level of deferred expenditure on the balance sheet, including amounts lingering from the Advance merger.

    The cost of some projects that would have been deferred in the past will be fully expensed in future accounts, she said.

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