ANZ shares dive on heavy royal commission and compensation costs
ANZ Banking Group's shares have slumped after it said it would take a $824 million hit to its annual result, with more than half that amount to compensate customers who received inappropriate advice or were charged fees for no service.
Shares in ANZ were down 2.34 per cent, or 65¢, to $27.07 at 11.15am on Monday after the group announced the massive writedown.
In another sign of the impact of the banking royal commission on bank's balance sheets, ANZ said it expected to record charges of $374 million after tax in the second half of the 2018 financial year for refunds to customers and related remediation costs.
"These relate to issues that have been identified from reviews to date," ANZ said in a statement released on Monday morning. "These reviews remain ongoing."
Of the $824 million in total impairments, ANZ said $697 million related to its continuing operations. This included a $206 million writedown on the value of the IT systems the bank used in its now largely abandoned Asian businesses.
It booked a further $127 million impairment on its wealth business, which it sold to IOOF last year.
Some of the remediation relates to refunds to customers severed by ANZ's aligned dealer groups that have now been sold to IOOF. ANZ is also remediating customers who were incorrectly charged interest payments and has made impairments for the customers it believes are likely to have received inappropriate advice.
The majority of the flagged impairments, or $711 million, will be recorded in the bank's second half to September 30.
Along with the customer remediation and software expenses, ANZ expects to book a $104 million hit on the restructuring of its technology department.
The bank also revealed that its legal costs for the royal commission for 2018 would be $38 million, with the majority of that amount, or $27 million, recorded in the second half.
ANZ's results are scheduled to be released on October 31. It last year delivered an annual cash profit of $6.9 billion.
The impairments come as the bank's chief executive, Shayne Elliott, prepares for a public grilling when he appears at the government's ongoing review of the banking sector on Friday.
The banking sector's fees-for-no-service scandal has been a flashpoint for the royal commission with all big four banks admitting to charging customers - including in some cases dead customers - for services they did not receive.
Last month, Westpac estimated its cash earnings would fall by $235 million in 2018 as a result of customer refunds and costs associated with the royal commission.
The Australian Securities and Investments Commission (ASIC) in August suggested banks' compensation bill for the fees-for-no-service scandal could exceed $1 billion.
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