ANZ warns of AUD 360m charge ahead of full-year results

Major Asia Pacific bank Australia and New Zealand Banking Group warned of a AUD 360m charge on its full-year results on Friday, sending shockwaves through the Australasian banking sector.

The ASX and NZX-traded group said it will announce its 2016 full year financial results on 3 November.

On Friday, it advised it will be recording additional specified charges in relation to a number of items, including the derivative credit valuation adjustment (CVA) in its institutional markets business.

ANZ said it has enhanced the methodology for the calculation of CVA, which it described as a valuation adjustment made to determine the fair value of derivative instruments.

The refined methodology makes greater use of market credit information and more sophisticated exposure modelling and is aligned with leading market practice, the bank claimed.

A AUD 168m charge, net of tax, will be recorded as a reduction to institutional markets revenue, the bank said, with AUD 25m relating to movements in CVA in the 2016 financial year and the remainder related to a once off adjustment for prior periods to mark to market the current derivative portfolio.

ANZ said it will also be recording a further AUD 100m - net of tax - in restructuring charges to “support the evolution of the group’s strategy, underpinning further productivity through reshaping the workforce, reducing complexity and duplication.”

The group will outline the use of this charge in more detail in the FY16 results materials, it said, and it will appear in the specified items table as per the restructuring charge taken in the first half.

“Total specified items in the second half will be AUD 360m,” the board said in its statement.

“In addition to the items outlined above this includes the second half impact of changes in the application of the group’s software capitalisation policy and pro forma adjustments for the Esanda Dealer Finance divestment announced in [the] interim results.”