Australian Investment Blog

ASX:ANZ 08/10/2018

ANZ announces remediation provisions, costs ahead of full year result

Stock ANZ $26.93 as at 8/10/2018 Event There’s just a few weeks before three of the big four banks rule off their financial year, and today we got our second look at how the Royal Commission has impacted the banks. This morning ANZ announced; A total of $711M in after-tax expenses and revenue reduction for 2H18 which comprised of:

$213M for refunds to customers and related remediation costs;
$161M for the cost of the program to determine the customer remediation payments;
$206M for software write-offs associated with the sale of international businesses. Since those businesses will no longer provide revenue to ANZ, related software costs need to be expensed immediately;
$104M relating to redundancy and other costs associated with agile working; and
$27M directly relating to the Royal Commission.

While not all charges are associated with the Royal Commission, a total of $374m will go to compensation of customers for breaches highlighted in the commission, $127m to issues within the wealth division sold to IOOF last year, while $310m goes to software and technology amortization and upgrades with the remainder used for external legal costs. The figure is more than double Westpac’s flagged $235m charge for compensation and highlights the need for compliance technology upgrades to ensure the banks stay in front of the fired up ASIC, as well as the margin squeeze that is happening as a result of misconduct. ANZ Chart

Market Matters Take/Outlook ANZ is down over 2.5% today on a charge that is more than 20% of their first half cash earnings figure. In our view, that shows the market is already heavily negative the big 4 with these charges largely built in.

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