ANZ contingencies add to big profit drop

Jenny Fagg

ANZ National's full-year net profit plummeted 80 per cent on bad debt and one-off charges including a $240 million charge against $400 million in potential "structured finance" tax avoidance liabilities it has yet to challenge in court.

New Zealand's largest bank announced a September-year net profit of $194 million against $990 million a year ago.

Profit before tax and credit impairment charges was up 8 per cent at $1.78 billion but bad debt charges rose from $300 million to $889 million.

That saw "underlying" after-tax profit fall 32 per cent to $628 million.

A further $434 million in one-off charges dragged the bottom line to $194 million.

The fall in profit was "understandable given the tough operation conditions we've been experiencing", chief executive Jenny Fagg said yesterday.

The year had been "difficult, to put it mildly", she said.

The one-offs included a previously announced $148 million charge related to a settlement with ANZ National customers who'd lost money in two frozen ING funds.

However, the $240 million provision against "tax conduit" liabilities was remarkable considering ANZ National has yet to challenge Inland Revenue's amended assessment in relation to its use of the transactions to allegedly avoid tax several years ago.

BNZ and Westpac have both lost High Court actions against the IRD challenging similar amended assessments in the past three months.

ANZ National chief financial officer Jeremy Robson said the unfavourable BNZ and Westpac decisions "would have had some bearing" on his bank's decision to make a specific provision against its potential liability.

Net of indemnities provided by National Bank's former owners Lloyds TSB, ANZ National estimated its total relevant liabilities may be around $400 million including interest.

The specific provision reflected a view that there was a 50:50 or better chance it would end up paying out on the disputed amount.

Meanwhile, market volatility associated with the global financial crisis helped ANZ National's institutional business lift revenue 36 per cent.

However, the crisis and associated economic downturn had an impact on the financial performance of the retail, wealth and commercial businesses.

Net interest margins in those businesses fell 26 basis points to 2.14 per cent over the year, due to intense deposit competition and higher wholesale funding costs.

Other factors were the timing lag in re-pricing fixed rate lending and the increased costs from early repayments of fixed-rate mortgages.

Revenue in those businesses declined 4 per cent, Fagg said.

Moreover, the sharp increase in bad-debt charges which took such a large bite out of the result was likely to continue as rising unemployment affected borrowers' ability to service their debts.

Fagg said the bank expected "quite a tough next 12 months for New Zealand".