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Moody's: ANZ profit warning is credit negative

Australia & New Zealand Banking Group Ltd.'s announcement that its fiscal full-year 2018 profit would be reduced by A$825 million due to charges for customer compensation and other items is credit negative for the bank, Moody's said Oct. 11.

The warning reflects the profit challenges Australian banks will face in the wake of the royal commission's inquiry into misconduct in the financial sector, the rating agency said.

ANZ will take A$711 million of charges in the second half of the fiscal year ended Sept. 30 in addition to A$114 million of charges in the first half. The second-half charges are mainly associated with compensation to the bank's customers that received inappropriate advice or for being charged for services not provided by the bank's former aligned dealer groups.

Moody's said the royal commission will likely lead to additional profitability pressures for Australian banks with higher regulatory costs and potential additional fines. However, Moody's expects ANZ to remain highly profitable despite the charges, with the charges in the second half to reduce full-year profits by about 9% and the full-year return on equity to be about 12%.