Australia's ANZ takes profit hit as inquiry fallout sweeps banking sector

By Paulina Duran and Jonathan Barrett

SYDNEY (Reuters) - Australia and New Zealand Banking Group Ltd said on Monday it would take a A$711 million ($501 million) hit to profit due to higher costs including compensation for customers stung by poor bank practices.

The warning, released ahead of the lender's Oct. 31 full-year results, sent shares of Australia's third-largest lender down more than 2 percent, while the broader market was slightly lower.

Australia's so-called Big Four banks are among the most profitable banks in the world, earning average net profit margins of 34 percent, according to Refinitiv data.

But misconduct revealed during nine grueling months of public hearings at an inquiry into financial sector misconduct has weighed on the sector, and forced the banks to set aside cash to restructure their businesses, pay for legal costs, defend lawsuits, and compensate customers.

ANZ said in a statement it would take a A$374 million ($263.6 million) charge to remediate customers who received inappropriate advice or paid for services-not-rendered, among the issues cited.

The Melbourne-based lender used the shareholder update to also write down A$206 million in software assets, and take a tech-related restructuring charge, creating a total impact to second-half profit of A$711 million.

"Everyone else is announcing remediation charges so ANZ was always going to do that," CLSA banking analyst Brian Johnson said.

"And if you are going to report a lower result you might as well get a few other things in there."

Fallout from the inquiry, called a Royal Commission, is sweeping through the sector after the release of a scathing interim report into their practices last month.

A final report, that could recommend legal charges and a regulatory overhaul, is due in February.

ANZ's disclosures on Monday weighed on its rivals, as the market digested how much other banks will need to set aside.

Shares in National Australia Bank, accused by the corporate watchdog of charging fees-with-no-service to hundreds of thousands of retirees, also fell over 1.2 percent on Monday morning trading.

NAB is assessing the regulator's case and in August said it expected to recognise provisions related to the Royal Commission.

Last month, Westpac Banking Corp, the country's second-largest bank, said its annual cash earnings would fall by about A$235 million on account of provisions for customer refunds and litigation.

($1 = 1.4188 Australian dollars)

(Reporting by Paulina Duran and Jonathan Barrett in SYDNEY; additional reporting by Aditya Soni in Bengaluru; Editing by Marguerita Choy and Stephen Coates)