ANZ to take A$130 mln hit on ING funds debacle; will cut dividend 25%

ANZ Banking Group issued a trading update for the four months to the end of January on Thursday that included a A$130 million one-off loss to account for ANZ's 49% share of expected losses from ING NZ. This followed ING NZ's decision on Wednesday to effectively offer heavy compensation to investors in two frozen funds. ANZ Banking Group also announced profits for the four months to the end of January were down around 11% to A$1.2 billion and said it was likely to cut its dividend 25% to preserve around A$500 million in cash. However, it said group profits for the full 2009 year would be in line with those from 2008 after the exclusion of one-off costs. ANZ said its earnings from New Zealand, where it owns ANZ and National Bank, would be down in 2009 from 2008, largely because of a doubling of bad debt charges to well over NZ$500 million. Here are all the comments below in ANZ's trading update relating to New Zealand. 

In New Zealand, volume growth has been flat and margins under pressure due to higher wholesale funding costs, competition for deposits and break costs on mortgages as customers take advantage of lower interest rates. Costs are being well controlled but increased credit provisions will drive a reduction in earnings in New Zealand in 2009. New Zealand customers moving out of fixed rate home loans this year (fixed rate home loans account for around 80% of mortgage lending) will benefit from a circa 2% reduction in mortgage rates compared to 2006. The decline in the New Zealand Dollar has provided some buffer to the impact of falling commodity prices and lower export demand. There has been recent publicity in New Zealand regarding certain frozen funds managed by our joint venture partner ING. Some of these funds were sold to ANZ customers. ING New Zealand yesterday made an offer to unit holders that allows them either a guaranteed value in five years time or the ability to exit the investment immediately for a cash settlement. ANZ's share of the current cost of this offer is around $130 million which will be taken as a charge against revenue. The ultimate cost to ANZ will depend on the final value of the units and recoveries under ANZ insurance policies. The New Zealand economy has contracted sharply with delinquencies subsequently rising strongly off an historically low base but within expectations. It is anticipated that provisions could approach double those of last year (FY08 NZ$286 million). Business lending arrears remain on par with the end of 2008. Unsecured lending delinquencies, including credit cards have increased, as expected in this part of the cycle, however tight control measures are in place.