Westpac's profit rise shrugs off price wars

Westpac and BNZ'S quarterly disclosure statements have shed more light on how the major banks fared in the December-quarter mortgage price war.

Westpac yesterday reported a 15 per cent rise in profit for the three months to the end of December. Profit after tax rose to $168 million from $146 million in the September quarter.

Spokesman Paul Gregory said Westpac had increased profit by largely staying out of the BNZ-led price war in the two-year fixed home loan market.

"We did a reasonable amount of business and still had reasonable margins," Gregory said.

Profitability came at the cost of less new mortgage business than its major rivals.

Westpac wrote $591 million of home loans in the quarter, lifting its housing book to $19.4 billion. BNZ wrote $810 million of new housing loans, lifting its book to $16.1 billion.

Last week, market leader ANZ National Bank said it grew its home-lending book during the quarter by $1.14 billion to $34.8 billion.

ASB's disclosure statement is not due out until March 11. But Reserve Bank figures show it achieved $1.067 billion mortgage growth in the December quarter.

BNZ, meanwhile, posted a December-quarter profit of $132 million, against $130 million in the the same period the year before.

It ran an "unbeatable" campaign in the December quarter pledging to undercut its major rivals in the two-year fixed home loan market. It offered loans at 6.9 per cent interest, charging rates as low as 0.3 per cent above its own cost of borrowing.

Because it does not use mortgage brokers, BNZ said it could afford to undercut major rivals who use brokers and pay their commissions.

In response, ANZ and ASB dropped their two-year fixed home loan rates to 6.95 per cent and the National Bank offered 7.05 per cent.

But Westpac held its advertised rate at 7.4 per cent, claiming it had a "compelling value proposition". All four now offer two-year rates between 7.6 per cent and 7.8 per cent.

Low margins on loans kept ANZ National's December-quarter profit at a static $180 million.

ASB's interest margin fell to a record low of 2.18 per cent in the quarter despite a 14.6 per cent rise in half-year profit to $183.2 million.

As of September 30, ANZ National had 35.5 per cent of the residential mortgage market, ASB 22.5, Westpac 20.4, and BNZ 15.9.

Westpac also said on-going analysis of hedges on structured finance transactions meant it had reclassified $52 million of interest income as interest expense in the December 2003 quarter.

Structured finance transactions are at the centre of a dispute between the IRD and major banks. These transactions use tax laws that give favourable treatment to money channelled to a foreign borrower through New Zealand.

ANZ, Westpac and BNZ are all disputing back tax bills from the IRD.

BNZ says its maximum potential liability is now $481 million, up from $269 million estimated previously. Westpac's is $647 million and ANZ's $348 million.