ANZ Bank makes provision for losses in tax cases
By Pattrick Smellie
Oct 29 (BusinessWire) – Australia & New Zealand Banking Group has taken a further $240 million hit to its 2008/9 earnings as the stakes rise against New
Zealand's foreign-owned banks challenging Inland Revenue Department tax avoidance claims.
ANZ is exposed to some $562 million of unpaid tax and backdated interest and the potential imposition of penalties,
relating to structured finance or "repo" transactions between 1998 and 2005 by the ANZ and its then rival, now
subsidiary, National Bank of New Zealand, which was previously owned by Lloyd's Bank.
National Australia Bank-owned Bank of New Zealand and Westpac New Zealand have both lost High Court challenges before
different judges in the last six months. While appeals are in prospect for both, ANZ National, Commonwealth Bank of
Australia's New Zealand subsidiary ASB, and Rabobank have all yet to have their day in court on similar transactions.
Lloyd's has indemnified ANZ up $157 million on the tax cases, so that provisioning sits at $397 million. ANZ has
previously made an undisclosed provision for losing the tax cases, which covers an unknown proportion of the outstanding
$165 million not specifically provisioned for so far.
The New Zealand operation had a difficult year, with several one-off hits to the bottom line totalling $434 million, the
main driver in cutting the division's profit to $194 million after tax declared, down 80% on the previous year's $990
million profit.
On top of the $196 million additional tax provisioning, the New Zealand accounts included $121 million in ANZ's share of
costs associated with the ING New Zealand settlement with investors.
Even larger, however, was the negative contribution of volatile changes in fair value of economic hedging activity,
which required a net loss of $248 million to be booked as a one-off impact on the statutory profit declaration. The
first half saw a loss of $709 million in this category, which was substantially reversed in the second half, with a $461
million gain.
The biggest impact on the result, however, came from a jump in credit impairment, which at $889 million for the year to
September 30 was an almost threefold increase on the $300 million reported in the previous year. Most of the pain was
booked in the first half of the year ($598 million), with the bank's New Zealand chief executive, Jenny Fagg, saying
this reflected "the New Zealand economic downturn, which was more protracted and pronounced than in Australia".
Rural lending showed the most dramatic deterioration, up from $4 million in 2008, compared with $54 million last year.
However, corporate and commercial banking impairments remained by far the largest cost, with provisioning of $181
million, compared with $43 million the year before. Retail loans provisioning in the year under review more than doubled
to $292 million.
New Zealand profit before provisioning was down 9% at $1.3 billion, compared with a 52% drop to $380 million
post-provisioning.
The Australian parent announced a net profit fall of 11% to A$2.943 billion, and singled out tough trading conditions in
New Zealand, which accounts for a bit over 20% ofANZ's total assets,
The parent accounts showed that the whole New Zealand operation, which includes Direct Broking, UDC Finance, and Bonus
Bonds produced a post-tax profit of A$310 million.
"The economic conditions helped our institutional business deliver a very strong result by taking advantage of market
volatility in the first half," Fagg said. "Institutional achieved a 36% increase in revenue in the full year compared to
2008.
"However, thse same conditions impacted the financial performance of the retail, wealth and commercial businesses."
Net interest margins in these businesses fell 26 basis points to 2.14%, reflecting intense retail deposit market
competition, higher wholesale funding costs, and lagged timing for re-priced fixed rate lending and a large volume of
early repayment of fixed mortgages.
(BusinessWire)