ANZ takes hit as it settles Pankaj and Radhika Oswal case

ANZ has suffered a blowout in bad debt charges after setting aside $145 million to settle the Oswals case.

Pankaj Oswal with wife Radhika and daughters Riddhi, 12, and Vasundhara, 18, right.

ANZ has suffered a fresh blowout in bad debt charges after setting aside $145 million to end a long-running dispute with former ­clients Pankaj and Radhika Oswal, reducing the array of legal cases hanging over the bank.

Ahead of ruling off financial accounts for the year to September 30, ANZ yesterday said it had reached a commercial settlement with the Oswals, who had launched a $2.5 billion claim for wrongly taking control of Burrup Fertilisers in 2010 and selling the ammonia production company.

While ANZ said the settlement resolved the claim and the bank had previously recovered about $1.3bn in loans, an additional $145m provision would be made in the full-year results to be unveiled on November 3. The provision adds to a $100m blowout in the group’s expected first-half bad debt charge to $918m as the slump in commodity prices took a toll across Australia and Asia.

ANZ’s lending books have remained under pressure, with the bank’s trading update last month revealing a further $482m of ­impairment charges in the three months to June 30 as leading ­indicators, such as arrears and impaired assets, also deteriorated.

In a note to staff, ANZ chief executive Shayne Elliott said court cases were “notoriously risky” even with a strong case and the bank had decided that the “quite unusual and complex circumstances” meant the risks from the battle with the Oswals were “too great”.

“Given this, the size of the claim and the potential for court interest to apply, the amounts were so large that we felt we could not expose our shareholders to that risk,” Mr Elliott said.

Analysts had already been forecasting full-year bad debts of $1.85bn and the new provisions would push the amount to about $2bn, reducing profits by up to 3 per cent.

In a positive broader market, ANZ shares dipped 1c to $27.23.

Andrew Martin, a principal of Alphinity Investment Management, said the market took the fresh provisions in its stride as profits may only be reduced about 1 per cent and the settlement was a “one-off” hit, rather than signalling broader credit weakness.

“If a number of companies are going bust, you can extrapolate that credit quality is turning whereas this is a one-off loss because of a specific case, not because the economy is rolling over,” he said.

But Mr Martin added that the $145m hit was not good and “highlighted some of the risks that ANZ takes versus others”.

Earlier this week, Morgans analyst Azib Khan warned that ANZ was “highest risk but not highest return”, believing the upside from the bank’s shrinking of low returning institutional assets was overstated and there was a “price to pay for past mistakes”.

The settlement of the Oswal case follows ANZ’s resolution of a class action involving credit card late payment fees when the High Court in July dismissed an appeal.

Former traders Etienne Alexiou and Patrick O’Connor have recently also dropped unfair dismissal cases against ANZ.

But the bank is still facing a defamation suit from former Bell Potter institutional sales trader Angus Aitken and cases related to alleged rigging of the bank bill swap rate.

Mr Elliott told staff ANZ did not normally settle legal cases like the Oswal case, having a “point of principle to stand our ground” when believing to be in the right, despite the risk of losing. He said the bank did not accept many of the claims made in court. But the responsibility to shareholders led ANZ to settle, “however difficult it may be to pay money in a case like this”, Mr Elliott said.

“While embarrassing allegations are the inevitable rough and tumble of legal cases, in usual circumstances these, and the negative headlines associated with them, are no reason to consider settlements,” he said.

“But in other respects this case has been far from usual since we first lent money to the Oswal/Burrup Group in 2005.”