ANZ Bank will recognise a further $559m (post tax) in 2H19 specified charges related to fees and interest calculations and customer remediation.
The majority of these costs ($405m) will be taken in continuing operations, and relate largely to product reviews in the Australia retail and commercial business for fee and interest calculation and related matters. The remaining $154m relates to discontinued operations, and is mainly for ANZ’s advice remediation program and customer compensation charges for other wealth products. Since 1H17, we estimate ANZ has taken $1.579bn of remediation charges. We estimate $689m of wealth provisions since 2013.
ANZ noted its “reviews remain ongoing”, suggesting further charges are likely. To account for this, we have allowed for a further $300m (post tax) in remediation charges, which we assume will come through in 1H20. It appears ANZ is yet to recognise material provisions for its consumer credit insurance (CCI) sales. We believe provisions for CCI sales for credit cards will account for some portion of this; CCI on credit cards has typically had a lower claims ratio than other products.
We expect the latest wealth remediation charges relate mainly to ANZ’s aligned dealer groups, with the bank having largely addressed its salaried financial planners in previous years. ANZ’s wealth remediation costs are still well below those of the other banks, which it has suggested could be due to more of its advisers selling life insurance products than other wealth products.
We have lowered our diluted EPS forecasts by 6% in FY19 and 4% in FY20, which includes a further $300m (post tax) of above-the-line remediation charges in 1H20, based on our estimates. We maintain our Hold recommendation with a $27.70 target price.