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Australia & New Zealand Bank flags $50 million Royal Commission cost

Tom Richardson
big four banks 16:9

Shares in Australia & New Zealand Banking Group (ASX: ANZ) opened marginally higher this morning despite the bank flagging that it will report several one-off costs when it hands in its financial results for the half year to March 31 2018, on May 1.

The bank will take an a non-cash quasi impairment of $632 million on the carrying value of its life insurance and One Path investments businesses that were sold to IOOF Holdings Limited (ASX: IFL) and Zurich RE respectively over the period. These businesses will be classified as ‘discontinued operations’ and their profit contributions reported separately given they are no longer part of the bank.

More important for shareholders is that the bank also flagged an expected $50 million legal bill over the period to September 30 2018 on top of $18 million in legal costs already incurred over the reporting period as a result of the Royal Commission into the conduct of the banks.

If ANZ can escape the worst of the Royal Commission fallout with a $68 million legal bill shareholders won’t mind too much given it reported a $3.6 billion half year profit this time last year.

The bank also flagged an $80 million cash hit to profit over the period that is related “to the implementation of agile ways of working in the Australia Division”. This sounds like corporate jargon for redundancy or technology investment costs, although it’s hard to know given the lack of detail as much of the bank is given a makeover under its relatively new leadership team.

In terms of the Royal Commission the bigger costs for ANZ and other banks like National Australia Bank Ltd (ASX: NAB) or Commonwealth Bank of Australia are likely to be reputational and around remediation for compliance, risk and reporting failings.

As the banks struggle for revenue growth many thought they might be able to rein in costs to boost their bottom lines and protect dividends, but that task is now looking harder given Commissioner Hayne is likely to hand down recommendations that create more red tape ahead.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.