The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is underperforming its peers on Monday.
At the time of writing, the banking giant’s shares are up ever so slightly to $26.22. This compares to a 1% gain by the Commonwealth Bank of Australia (ASX: CBA) share price.
Why is the ANZ share price underperforming?
This morning ANZ released an update in relation to news that AmBank has made an agreement with the Malaysian Ministry of Finance to resolve potential claims relating to its involvement with 1Malaysia Development Berhad (1MDB).
According to Reuters, the Malaysian bank will pay the government 2.83 billion ringgit (~US$700 million) to settle claims linked to a massive financial scandal at 1MDB.
1MDB is a state fund set up in 2009 by former prime minister Najib Razak. AmBank has been under investigation for its role in the alleged theft of US$4.5 billion from 1MDB.
Mr Najib was also under investigation and ultimately found guilty of corruption and money laundering over the transfer of millions of dollars linked to a 1MDB unit into his AmBank accounts between 2014 and 2015. Though, the former prime minister denies any wrongdoing and has filed an appeal.
In response to the agreement, AmBank said: “While this will have a material impact on the current year’s profitability, there are adequate capital buffers to absorb this settlement without an immediate need to raise additional equity capital.”
The finance ministry will also require AmBank to take corrective measures, as part of the settlement. This includes putting in place systems and processes to strengthen its due diligence framework.
How does this impact ANZ?
This morning ANZ revealed that the impact on its CET1 capital position will be neutral given its investments in associates are already a full deduction to capital.
However, the financial impact on ANZ of $212 million will be recorded as part of the equity accounted earnings from AmBank in its first half accounts. This will reduce the carrying value of ANZ’s interest in AmBank from ~$1.050 billion to ~$850 million.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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