Internet costs a drag on St George Bank profits

St George Bank is blaming a drop in its half-year profits on significant Internet investments made as part of a new strategic plan dubbed 'Even Better Bank'.

The bank's chief executive Gail Kelly attributed a fall in net profit in the six months to March 31 partially due to "huge" Internet investments made as part of a growth strategy into 2003-2004, which focus on customer-led growth and gaining more market share in Victoria and Queensland.

Net profits fell to $187 million in the six months to March 31 from $211 million in the previous corresponding period.

Goodwill writedowns drove the fall, including $87 million for the bank's financial software platform and research business for financial planners, Wealthpoint, and other Internet investments, according to Kelly.

In a prepared statement about its write-off of Wealthpoint, the bank said: "While there are a number of valuable businesses in the portfolio, they are at different stages of maturity, have different profitability outlooks and risks attached."

The bank said it would approach "conservatively" a number of other Internet investments complementary to its financial service offerings made in the last several years, because these partner companies had varying maturity and risk profiles.

Internet investments that have been subject to this "review" include Australian e-commerce partners such Ctel Technologies, Autobytel Australia, NSW State Chamber of Commerce's portal thechamber.com.au, B2B marketboomer, Netxsurance, Stockford Limited and Virtual Communities Limited.

In April this portfolio of investments was written down by $15 million net to a carrying value of $4 million.

Competitors like the National Australia Bank (NAB) on the other hand recorded a half-year profit growth of 22 per cent for the region.

Internet investments such as CRM, Web enablement and a new Internet banking platform figured in this growth, according to NAB chief executive Frank Cicutto.

On the cost side, Cicutto said the bank would achieve cost savings of $370 million worldwide by September 2004.

Cut-backs in back office, IT and operations would account for 43 per cent of this figure, he said.

However, such efficiency-generating measures will cost 1400 NAB employees their jobs over the next 18 months.

Process re-engineering and streamlining throughout NAB's IT group as a result of investments in new technology would reduce employment, particularly in administration and back-office areas.

"Technology and process changes mean fewer positions," Cicutto said.

How seriously IT will be affected in the redundancies is unclear at this time.

(Kelly Mills contributed to this article.)

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