Morningstar is confident that the worst of ANZ’s remediation woes are behind it, while NAB’s costs could blow out to 2020.
In his latest analysis following the release of ANZ’s 1H19 results last week, Morningstar equity analyst David Ellis increased his forecast fiscal 2019 cash profit from $6.7 million to $6.9 million after the major bank was able to beat estimates and deliver a $3.6 million profit in the first half.
“The highlight was a surprising 2 per cent decline in operating expenses, more than compensating for the 1 per cent decline in revenue,” Mr Ellis said.
“During the past three years, the bank has absorbed expense inflation of approximately $550 million and reduced absolute costs by over $300 million.”
ANZ’s cost to income ratio improved over the first half to 44.8 per cent. The bank incurred $175 million pre-tax in customer compensation costs in the first half, taking the total remediation cost to $928 million since the first half of fiscal 2017.
“We think the bulk of the bank’s remediation cost recognition is now behind it as the bank started the process in early 2017,” Mr Ellis said.
It’s big four peers continue to face cost challenges related to remediation, however. NAB’s $3.3 billion profit over the six months included $325 million of customer remediation charges.
“The program of customer remediation and reviews continues with the potential for further costs to be recognised in fiscal 2019 or fiscal 2020, particularly for customer refunds and interest compensation for customers receiving financial advice through the bank’s aligned adviser, or self-employed adviser channel, between 2009 and 2018,” Mr Ellis said, noting that around $1.3 billion in fees were paid by customers to financial advisers over that period.