Bank shares took a battering today in the wake of the second downgrade from the ANZ for its bad debts position ahead of the bank’s ruling off its interim results next Thursday, March 31.
In fact the ANZ Bank revealed a further blowout in its bad debts for the first half to nearly double what they were a year ago, raising the very real prospect of a profit fall for the first half and threatening the bank’s generous dividend.
Before today, ANZ shares were down 8% so far this year and more than 31% in the past year. A month or so ago ANZ shares were down more than 37% over the past 12 months and today’s news sent them lower again. The ANZ’s shares fell more than 4% in the opening nights and were down 3.7% around 10.30 am. The three other majors saw smaller falls, but the winder market was down more than 40 points in the first few minutes as the ANZ news fed into weak leads from offshore markets overnight.
In the wake of today’s surprise, the ANZ is now competing with the Commonwealth for the tag as banking’s bad bank.
Its woes with regulators, weak trading conditions in Asia, the bad debt blowout, and poor culture has seen it join the Commonwealth Bank as the mantle of the sector’s bad boy. And in the past year the bank was forced to restate billions of dollars in home loan mortgages that had been wrongly classified as investor owner occupied lending. (it is not alone, the NAB has made similar changes, as have other banks in recent months).
The Commonwealth earned its current poor reputation for the weak handling of the financial advice scandal, and the last problem, its CommInsure insurance arm and the way it has handled claims from customers – some in appalling fashion.
Now the ANZ has been hit by yet another blowout in its bad debt provision for the six months to March 31. It told the ASX this morning that an increase in soured or souring loans in the resources sector was behind the latest rise.
This was after the shock in February when the ANZ slipped out news of the surge in bad debt provisioning in the first half trading update. The estimated amount jumped to $800 million or more. Now its $900 million and heading for $1 billion. That would be almost double the $510 million reported for the first half of 2014-15 and see the ANZ report a slide in profit for the first half of 2015-16. And that would raise the question of whether the 86 cents a share interim can be maintained.
This latest shock comes on top of the ASIC court action against the bank over claims that some of its traders tried to rig a key market interest rate. ASIC also fined the ANZ more than $220,000 over breaches of financial advice regulations.
The bank has ordered an independent review of its insurance and superannuation arm OnePath after a series of breaches affecting 1,300,000 customers, some of whom had their super paid into the wrong account for up to a year. The review was ordered after ASIC raised concerns about compliance at the OnePath division. The breaches, including those that did not require monetary remediation, total $53.5 million and occurred between early 2013 and mid-2015. The ANZ has had to pay $4.5 million in compensation and refunds to its customers over the breaches.
In its statement to the ASX this morning, the ANZ said its total charge for bad and doubtful debts for the first half would be “at least” $100 million more than the $800 million figure it had revealed in the February update (that was mentioned in passing in the commentary). Much of that rise was blamed on higher bad and doubtful debts in its Asian banking businesses, now there’s a rise in its domestic Australian corporate businesses. That’s a warning to all investors to pay close attention to the likes of the Commonwealth, Westpac and the NAB. If the ANZ is feeling the pinch from the downturn, can the others escape? The ASX should start asking the other banks about the bad debt levels, in the interests of greater disclosure.
The bank blamed increase on “a small number of Australian and multi-national resources related exposures”. Acting chief financial officer Graham Hodges told the market that “While the overall credit environment remains broadly stable, we are continuing to see pockets of weakness associated with low commodity prices in the resources sector and in related industries. "This is a challenging part of the cycle for these customers with implications for the banking sector as individual circumstances evolve. We are continuing to monitor ANZ’s exposures carefully and we will keep investors up-to-date with any changes to the credit outlook.”
And then there’s the shake out from a number of wobbling local companies such as Arrium, Dick Smith, McAleese Corporation and Clive Palmer’s nickel business in north Queensland (whoever owns it this week). And there’s the growing possibility that Australia’s big four banks, including the ANZ will soon have to start providing more for impaired and dodgy loans in the weakening NZ dairy sector where they are the major lenders.
