ANZ Group Holdings Ltd (ASX: ANZ) shares are trading lower on Monday after the company flagged a $196 million charge to hit its second-half 2024 earnings.
The charge relates back to acquisition-related accounting adjustments following its buyout of Suncorp Bank earlier this year.
Shares are down less than 1% in early trade and swapping hands at $31.49 apiece. Let's take a closer look.
ANZ shares down as earnings to take a hit
ANZ's $196 million charge stems from two key adjustments required for consolidating Suncorp Bank's assets into its books.
The first is an accelerated software amortisation charge. ANZ recorded a $36 million charge against its profit (or $25 million after tax) to "align Suncorp's software capitalisation policy with ANZ's."
The second is a credit impairment charge. This is more substantial and will create a $244 million charge (or $171 million after tax) against the bank's earnings in H2 2024.
It relates to what is known as credit impairment accounting. Under Australian standards, ANZ couldn't carry over Suncorp's pre-existing balance for expected credit losses (ECLs).
Instead, ANZ had to create its own provision for ECLs on its own balance sheet. It couldn't rely on Suncorp's statements.
ANZ then had to establish an ECL allowance for the acquired portfolio using its own methodology, a related credit impairment charge is recorded in the Income Statement.
Since ANZ could not recognise the existing Suncorp Bank ECL under accounting rules, the initial carrying value for that portfolio increased, leading to a proportional reduction in acquisition-related goodwill.
Critically, the $196 million charge does not alter the agreed value of Suncorp's assets or impact the acquisition price.
However, it will reduce ANZ's Common Equity Tier 1 (CET1) capital ratio by around 2 basis points.
More importantly to investors, it will impact ANZ's statutory and cash profit by nearly $200 million, which could impact ANZ shares.
What's the bigger picture for ANZ?
This additional charge could lead analysts to adjust earnings estimates for ANZ's full-year results if they haven't already.
Morgan Stanley recently indicated that ANZ might continue to underperform compared to its big-bank peers.
The broker expects margin pressures to persist, driven by factors like declining mortgage balances and rising deposit costs.
It, too, commented on the potential risks in "the Suncorp Bank synergies".
UBS rated ANZ a buy last month, citing its solid capital position and projected profits of $7.3 billion for the year. It priced the stock at $32 per share.
But that was before today's earnings adjustment. Time will tell what impact this has on the broker's estimates and price target.
What's more, in addition to the Suncorp-related charge announced today, ANZ is navigating some external hurdles.
The bank is embroiled in a bond trading investigation by ASIC concerning alleged market manipulation during a $14 billion government bond transaction.
The ongoing investigation has led to ANZ's exclusion from a few major debt sales and resulted in internal reviews, along with the departure of three bond traders.
Foolish takeout
The coming months are crucial for ANZ shares as the bank integrates Suncorp and responds to ASIC's investigation findings.
Time will tell if the bank will navigate the rough waters unscathed.
In the last 12 months, the stock is up more than 27%.
