The Australia and New Zealand Banking Group (ASX: ANZ) share price is up 0.4% in early trading despite unveiling more Royal Commission remediation costs.
ANZ is a leading Australian and New Zealand banking institution, with a presence throughout the oceanic region. ANZ is one of the Big Four Aussie banks and derives much of its revenue from mortgages, personal loans and credit.
ANZ’s New Royal Commission Costs
ANZ has revealed that its second half of 2019 cash profit will be hit by another $559 million of after tax Royal Commission remediation costs.
The major bank split out the costs between its continuing operations and discontinued operations.
Within the continuing operations segment the bank will recognise $405 million of after tax remediation charges, or $485 million before tax. This amount mostly relates to product reviews in Australia Retail & Commercial for fee and interest calculation and related matters. It relates to both historical issues and refinements to estimates of existing customer compensation programs.
In the discontinued segment there remediation charge will be $154 million after tax (or $166 million before tax), which is to do with advice remediation and other wealth products.
This brings the total customer remediation to $682 million after tax for FY19 and $422 million for FY18. In total, so far, ANZ’s net profit has been hit by over $1.1 billion. That’s $1.1 billion that could have been used to strengthen the balance sheet, pay dividends to shareholders or grow the business.
This isn’t even the end of the charges because the reviews remain ongoing. At least today’s announcement was as bad as National Australia Bank Ltd’s (ASX: NAB) recent remediation cost update.
ANZ CFO Michelle Jablko said: “We recognise the impact this has on both customers and shareholders. We are well progressed in fixing issues and have a dedicated team of more than 500 specialists working hard to get money owed back to customers as quickly as possible.”
We’ll see if this has an impact on ANZ’s final dividend, I’m not sure at this point whether ANZ has enough profit and balance sheet flexibility.
But as long as big banks like ANZ and NAB keep reporting more charges I don’t think the banks are worth buying – the dividend could be damaged and net interest margins (NIM) are coming under pressure. I’d rather buy the reliable shares in the free report below over ANZ.
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