ANZ on Friday reported an underlying profit after tax of $1.4 billion for the three months to December 31, 2010, 27 per cent higher than the previous corresponding quarter.
But the bank's margins are under pressure, with chief financial officer Peter Marriott telling analysts that the group's margin was two to three basis points lower than the September 2010 quarter.
After stripping out the bank's Markets trading business, the group's margin was two basis points higher, he said during a presentation.
Chief executive Mike Smith said margins would improve as ANZ's Asia-based assets made up a higher proportion of total assets.
"As we build up the level of assets in Asia there will be a little bit of margin pressure but that will be compensated by the amount of volume and non-margin income that will be generated from that markets business," he said.
Mr Smith said the bank's first half 2011 Jaws, a measure of the gap between revenue and costs, would be flat as it continued to invest in Asia and chase higher revenue.
ANZ's December quarter Jaws were neutral compared with the September quarter, and its December quarter income of $4.2 billion was two per cent higher than the December 2009 quarter thanks to the strength of the Australian dollar.
Profit-taking among investors saw ANZ's share price drop by 71 cents, or 2.77 per cent to $24.94 by 1148 AEDT, their first significant fall in a month. The shares closed at a 10-month high on Wednesday.
ANZ's shares climbed six per cent from early January and with the December quarter result already factored into the share price, a sell-off was likely, Burrell Stockbroking's director of equities Richard Herring said.
"It's a case of the market buying the rumour and selling the fact," he said, adding that ANZ's result was very good and in line with consensus expectations.CMC Markets' market strategist Ric Spooner said there were no surprises in the December quarter result, and CMC dealer Matt Lewis said ANZ's shares fell due to short-term positions being sold down.
ANZ said customers across Australia and Asia were increasingly choosing it over other banks, and National Australia Bank Ltd's (NAB) current retail banking campaign to differentiate itself from its three rivals was of no concern.
"We have continued to grow market share," Mr Smith said.
"The customer preference is clearly there to us - that is our strategy.
"I'm not really interested in a short-term tactic," he added.
NAB on Tuesday launched an advertising campaign asserting it is "breaking up" with ANZ, Commonwealth Bank and Westpac in an effort to distance itself from them amid public anger over the big four banks' profits and interest rate hikes.
ANZ has retained its target of seeking 20 per cent of group earnings from its Asia Pacific Europe and Americas (APEA) division and grew customer deposits across the regions by 6.5 per cent to $US49 billion ($A48.4 billion) in the December quarter.
Mr Smith said ANZ had rebalanced the APEA deposits portfolio and growth had slowed deliberately.
"I wanted to slow down that growth in deposits a little bit to get a better mix on return."
"We'll press the accelerator on a bit harder on that one again."
Strong growth in the APEA first half 2011 US dollar-based pre-provision profits can be expected if its Markets trading business continues its strong December quarter performance, Mr Marriott said.
ANZ's margins across the Australian division were flat due to higher funding costs and deposit costs, he said.
Mr Smith said ANZ was starting to see margin pressure in the mortgage market, and "inevitable" pressure in institutional and corporate sector lending markets.
"However, with the business mix we have we will try and hold the margin for as long as we have and I think that certainly for the half year we should be okay."
ANZ said December quarter middle market commercial lending was flat, while the resources, agriculture and infrastructure sectors helped boost lending in ANZ's institutional book by 3.5 per cent on the previous corresponding quarter.
A lot of capital projects were previously in the pipeline and awaiting a pick-up in business confidence, Mr Smith said.
"We're now beginning to see that at the top end of the market."
Asked if the market's full year 2011 consensus of $1.35 billion for ANZ's bad debt charge was still accurate given the recent fall in impaired assets, Mr Smith said ANZ was taking a prudent approach given the uncertainty over the impact of recent natural disasters.
"We don't anticipate any nasties," he said.
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