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ANZ Bank (ASX:ANZ) shares tumble lower on $374 million profit hit

It has been a disappointing start to the week for the Australia and New Zealand Banking Group (ASX: ANZ) share price.

In morning trade the banking giant’s shares are down nearly 2.5% to $27.06.

Why are ANZ Bank’s shares tumbling lower?

Last month Westpac Banking Corp (ASX: WBC) announced that its profits would be hit by $235 million of provisions for customer payments and related costs.

This morning ANZ Bank has followed suit by announcing that its full year cash profit will be impacted by additional charges for customer compensation, accelerated amortisation of software, and other notable items.

According to the release, charges of $374 million have been recognised in the second half for refunds to customers and related remediation costs.

The release explains that approximately 57% of the charges relates to customer refunds impacting revenue, with the balance relating to remediation costs recorded as an expense. The total remediation charge is split 66% and 34% between continuing and discontinued operations.

As was the case with Westpac, some of these charges are for compensation for customers receiving inappropriate advice or for services not provided within the bank’s former aligned dealer groups.

It is worth noting, though, that these charges are for issues that have been identified for reviews to date. As these reviews are ongoing, there’s a chance that more charges could occur in the future.

Other costs.

As well as customer charges, the company has reported an acceleration in the amortisation of certain software assets. This is predominantly related to its international business and follows a recent review along with a number of divestments announced or completed this year. Accelerated amortisation expense of $206 million will be recorded during the half.

In addition to this, the bank advised of restructuring charges of $104 million relating to its Australia and Technology division and external legal costs associated with the Royal Commission which will total $55 million (pre-tax) for FY 2018.

The overall impact of these additional charges is expected to hit its CET1 ratio by less than 10 basis points.

Should you buy the dip?

Although investors have hit the sell button in a hurry today, I don’t think the market will have been overly surprised with this news. Especially after Westpac’s update late last month.

So, in my opinion, very little has changed with this announcement and I continue to see ANZ Bank as a good option for investors with little exposure to the banks.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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