Derivative Credit Valuation Adjustment (CVA) – Institutional Markets Business
ANZ has enhanced the methodology for the calculation of CVA, a valuation adjustment made to determine the fair value of derivative instruments. The refined methodology makes greater use of market credit information and more sophisticated exposure modelling and is aligned with leading market practice. A $168 million1 charge (net of tax) will be recorded as a reduction to Institutional Markets revenue and will appear in the Specified Items table for comparative purposes. Of this, $25m relates to movements in CVA in the 2016 financial year with the remainder related to a once off adjustment for prior periods to mark to market the current derivative portfolio.
ANZ will be recording a further $100 million (net of tax) in restructuring charges to support the evolution of the Group’s strategy, underpinning further productivity through reshaping the workforce, reducing complexity and duplication. The Group will outline the use of this charge in more detail in the FY16 results materials, and it will appear in the Specified Items table as per the restructuring charge taken in the First Half.
Total Second Half Specified Items Charges
Total Specified Items in the Second Half will be $360m (net of tax). In addition to the items outlined above this includes the second half impact of changes in the application of the Group’s software capitalisation policy and pro forma adjustments for the Esanda Dealer Finance divestment announced in ANZ Interim Results.
Tables were provided in the Consolidated Financial Report and Dividend Announcement at the First Half Result to identify the impact of Specified Items on Cash Profit in order to allow comparison with prior periods. A template in the same format, updated to include the Second Half Specified Items is included with this News Release to assist the market with its preparations ahead of the FY16 results release.