ANZ’s Share Prices Declined after Providing Update on Customer Compensation and Software Amortization

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On 8 October 2018, Australia and New Zealand Banking Group Limited (ASX: ANZ) made an announcement which states that its full Year 2018 cash profit is going to be affected due to the additional charges for customer compensation, accelerated amortization of software and other notable items. Following the release of this news, the share price of the company decreased by 2.63 percent as on 8 October 2018.

As per the release, the Group recognized charges of $374 million in the second half of FY 2018 for refunds to customers and related remediation costs and around 57 percent of these charges are related to customer refunds which are impacting the revenue, with the balance relating to remediation costs recorded as an expense. Key items of customer remediation include compensating customers for issues arising from product reviews in the Australia Division and Compensation for customers receiving inappropriate advice or for services not provided within ANZ’s former aligned dealer groups. ANZ has accelerated the amortization of some software assets which are related to its International business and these accelerated amortization expenses of $206 million are going to be recorded in the second half of FY 2018.

Some notable items which are going to be highlighted in the FY 2018 Results announcement includes restructuring charges of $104 million in second half of FY 2018, largely relating to the previously announced move of the Australia and Technology Divisions to agile ways of working and external legal costs associated with responding to the Royal Commission which will total $55 million (pre-tax) for FY 2018. Compared to the first half of the Financial year 2018, the impact of these additional charges on ANZ’s CET 1 capital position is expected to be less than 10 basis points. ANZ’s FY 2018 results announcement is planned to be released on 31 October 2018 and the results template is to be issued in late October. 

On 2 October 2018, IOOF Holding Limited announced that completion of the acquisition of ANZ aligned Dealer Groups (ADGs) and further arrangements for the completion of the acquisition of the ANZ One Path Pensions and Investments (ANZ P&I) business. ANZ is expected to pay a coupon rate of 14.4 percent to IOOF, which is broadly equivalent to 82 percent of the economic interests in the ANZ P&I business, from 2 October 2018 until the debt note is redeemed. ANZ P&I business acquisition by IOOF is expected to be completed after successful completion of a successor fund transfer which is planned to occur at the end of March 2019.

For nine months ended FY18, the operating income of the group increased from NZ$2,924 million in June 2017 to NZ$3,178 million in June 2018. The Profit after tax of the company increased from NZ$1,274 million in June 2017 to NZ$1,432 million in June 2018. The group was having a total cash of NZ$3,172 as of 30 June 2017. The cash flow from operating activities increased from NZ$1,280 in June 2017 to NZ$2,004 in June 2018.

Meanwhile, the share price has decreased by 2.50 percent in the past three months as of October 05, 2018 and traded close to very high PE level of 11.84x. ANZ’s share traded at $26.990 at a market capitalization of circa $79.66 billion as on 8 October 2018 (AEST 4:00 PM).

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