Shares of ANZ Group Holdings Ltd (ASX: ANZ) traded lower on Monday following an announcement that the bank will incur a $196 million charge against its second-half 2024 earnings.
This charge stems from accounting adjustments required to integrate Suncorp Bank, which ANZ acquired earlier this year, into its financial records.
The $196 million charge is the result of two primary adjustments:
- Accelerated Software Amortization: ANZ incurred a $36 million charge ($25 million after tax) to adjust Suncorp Bank’s software capitalization practices to align with ANZ’s policies.
- Credit Impairment Charge: The bank took a more substantial charge of $244 million ($171 million after tax) due to credit impairment accounting. Under Australian accounting standards, ANZ was required to establish its own provision for expected credit losses (ECLs) on Suncorp’s loans, rather than carrying over Suncorp’s existing ECL balances.
These adjustments do not affect the acquisition price or assessed value of Suncorp’s assets. However, ANZ’s Common Equity Tier 1 (CET1) capital ratio will decrease by around 2 basis points due to these charges. The bank noted that the credit impairment charge does not reflect any change in the credit quality of Suncorp’s loan portfolio and will be treated as a one-time adjustment.
Following the announcement, ANZ shares dipped less than 1%, trading at approximately $31.49. While the adjustment was anticipated by some analysts, the reduction in earnings due to this charge could prompt revisions to full-year earnings estimates.
Market analysts have provided mixed perspectives on ANZ’s outlook. UBS rated the bank a “buy” last month, estimating annual profits of $7.3 billion and a target share price of $32. However, the latest charge may lead to a reassessment of these figures. In contrast, Morgan Stanley has expressed concerns over ANZ’s long-term performance, noting challenges related to cost pressures and integration risks following the Suncorp acquisition.
Beyond the Suncorp-related adjustments, ANZ faces additional hurdles. The bank is currently under investigation by the Australian Securities and Investments Commission (ASIC) for alleged bond trading irregularities in a $14 billion government bond transaction. This ongoing investigation has led to ANZ’s exclusion from certain major debt sales, internal reviews, and the departure of three bond traders from the bank.
Despite the challenges, ANZ has shown resilience, with its stock up over 27% in the past 12 months. The bank will release its full second-half results on November 8, with Suncorp’s earnings contribution separately highlighted, given that only two months of its operations will be included in this reporting period.
The Motley Fool and ANZ contributed to this report.
