ANZ Banking Group: Additional remediation changes

About the author:

Azib Khan
Author name:
By Azib Khan
Job title:
Senior Analyst
Date posted:
15 October 2019, 1:43 PM
Sectors Covered:
Banks

  • ANZ today announced that it expects customer-related remediation charges of $559m after-tax in 2H19. This is greater than our expectation of $250m after-tax.
  • We are forecasting $150m after-tax of customer-related remediation charges in 1H20 which we expect to largely be related to Retail & Commercial banking.
  • We retain our add recommendation 

Additional customer-related remediation charges

ANZ has today announced that its 2H19 cash earnings will be impacted by a charge of $559m (after tax) stemming from increased provisions for customer-related remediation.

Unlike NAB's additional customer-related remediation charges announced last week, the bulk of ANZ's new charges does not relate to financial advice; instead ANZ's charges largely relate to product reviews in Australia Retail & Commercial for fee and interest calculation and related matters.

These include historical matters recently identified during the period, as well as refinements to estimates of existing customer compensation programs and associated costs.

Of the total charge of $559m after-tax, $154m relates to discontinued operations, primarily associated with the advice remediation program and customer compensation charges for other Wealth products.

Expecting further charges in 1H20

ANZ has said the charges announced today relate to issues that have been identified from reviews to date and these reviews remain ongoing.

We are now forecasting $150m after-tax of customer-related remediation charges in 1H20 which we expect to largely be related to Retail & Commercial banking.

Investment view and changes to forecasts

While we were previously forecasting $250m after-tax of customer-related remediation charges for 2H19, we treat our remediation forecasts as non-cash items until they are announced by the banks.

Consequently, our cash EPS forecast for FY19F is reduced by 8.0%. We have made no changes to our cash EPS forecasts for the outer years.

We retain an Add recommendation.Our target price, based on our DDM valuation (Morgans clients can login to view detailed reports and price targets).

Key downside risks include a material increase in funding costs and greater-than-expected asset quality deterioration.

More information

To view further analysis, Morgans clients can view the full research note. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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