ANZ warns of $817m hit to cash profit
ANZ’s profit warning comes as the bank sector prepares to unveil stronger underlying earnings due to a recovering economy.
ANZ Bank will take an $817m hit to next week’s half-year cash profit due to a range of notable items, as the major-bank sector prepares to unveil stronger underlying earnings due to the recovering economy.
The biggest item announced on Friday was a $251m goodwill writedown related to the ANZ share trading operation E-Trade Australia as a result of the business’s reclassification to “held for sale”.
E-Trade was acquired in 2007 but is now earmarked for divestment as part of ANZ’s continuing simplification program.
On top of that, ANZ set aside a further $108m for customer remediation charges, along with a $135m writedown in the carrying value of the 24 per cent investment in Malaysian lender AmBank.
The latter will have no impact on ANZ’s common equity tier one ratio.
Finally, there was $63m of restructuring charges and other smaller divestment impacts.
With $260m of previously announced notable items, the total figure came to $817m.
ANZ said the impact on its CET1 ratio was about five basis points.
The Melbourne-based lender is the second of the three major banks with September balance dates to announce significant items shortly before their half-year results.
Westpac, which will kick off the major banks’ interim profit reporting season on Monday, flagged $282m in significant items earlier this week, mostly due to extra provisions for customer refunds and litigation.
The net figure included $588m in provisions, writedowns and losses, partly offset by a $288m net gain in the group’s Coinbase investment after the cryptocurrency exchange platform’s successful initial public offering.
There was also an $18m profit on the sale of its stake in buy now, pay later group Zip.
Of the $282m in notable items, $212m was announced in the first-quarter market update, with the remaining impact on net cash earnings accrued in the second quarter.
Before the Friday update, Citi analyst Brendan Sproules was expecting ANZ to report a half-year profit of $3.22bn, up from $1.41bn a year ago.
Like other analysts, Mr Sproules is bullish about the sector, saying the sharp improvement in domestic economy, particularly in the jobs market, was set to make the major banks’ COVID-crisis loan loss provisions redundant.
“With some write-backs recorded during February, and further minor write-backs expected in May, just how long will the auditors allow the major banks to hold these provisions on their balance sheets?” he asked.
“In this upcoming reporting season, management is set to come under pressure to reveal the timing of loan provision run-downs.
“We estimate that consensus earnings in the 2021 financial year could be an average of 12 per cent higher if just 60 per cent of the COVID loan provisions are released back.”
ANZ’s previously announced profit hits included $212m of equity accounted losses from AmBank, and $48m due to settlement of a US class action brought against ANZ in 2016, and related legal and other costs.
The settlement, without any admission of liability, related to the bank bill swap rate (BBSW) and the trading of BBSW-based products.
This followed the settlement of a case brought by ASIC against ANZ, in which the bank agreed it had attempted to engage in unconscionable conduct by seeking to change where the BBSW was set on certain dates.
AmBank has continued to be a source of trouble for ANZ, as chief executive Shayne Elliott unsuccessfully tries to exit the investment.
ANZ revealed it had incurred $212m in AmBank equity accounted losses early last month, following AmBank’s $700m settlement with the Malaysian Ministry of Finance over potential claims related to its involvement with the sovereign wealth fund 1MDB.
The impact on ANZ’s capital position was neutral because investments in associates are already a full deduction to capital under prudential rules.
ANZ said in March that the losses had reduced the carrying value of its interest in AmBank from $1.05bn to $850m.
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