ANZ Bank (anz.ASX:Quote,News) is facing more than $300 million in writedowns on loans and investments relating to its troubled private equity operations.
The bank and investors in ANZ-backed private equity funds are counting the cost of a string of private plays that have collapsed this year amid toughening economic conditions, the Herald Sun reported.
ANZ has already taken a $114 million provision to cover problem exposures in its private equity arm, but sources have told BusinessDaily that further substantial provisioning will be required before the end of September.
While the bank in the past 12 months has been winding down its private equity investment business under chief executive Mike Smith, it still has more than $500 million of direct equity and loans at risk with more than 40 businesses it supported through the private equity arm.
In the past month two of those businesses - Bush's International Pty Ltd and Blueprint Management Holdings - have been put in the hands of administrators and receivers after they both racked up big operating losses.
Blueprint, which provided marketing services to Westpac, American Express, American International Group and Commonwealth Bank, went into administration on June 5 with almost $60 million of debt.
The big worry for the secured creditors is that the administrators John Melluish and Steven Sherman of Ferrier Hodgson have cast doubt on the possibility of selling the business.
This has serious implications for the carrying value of Blueprint's main asset which is goodwill valued at $98 million. Goodwill is an asset that attempts to value a company's brand and other intangibles in the event of a sale.
"It is clear that the net asset position of the business is kept positive by the inclusion of nearly $100 million in goodwill and other intangibles," the administrators said in a report issued last week.
"Should these intangibles be taken out of the balance sheet, as it is appropriate to do at this stage, a $46 million deficiency is the result."
Following a capital restructure earlier this year, ANZ Private Equity became the largest stakeholder in the business with a 41.8 per cent interest.
ANZ is set to take a $20 million hit on loans made to Blueprint and is expected to write off at least $30 million on its equity investment.
The pain will be shared with Westpac which also has loans worth $20 million on the line.
Blueprint employed about 350 permanent staff, most of whom are set to lodge claims for more than $3 million worth of unpaid wages and other entitlements through the taxpayer-funded General Employee Entitlements and Redundancy Scheme.
ANZ has another big headache developing through its majority investment in a Sydney-based pet food maker, Bush's International, which went into administration on June 29.
The bank pumped additional capital into BI last year but the operating performance has continued to deteriorate following a $77 million loss for the 12 months to the end of June 2008.
On June 30 last year Bush's International had a net asset deficiency of more than $45 million.
The ANZ Business Equity Fund has strategic stakes in 20 ANZ-sponsored businesses, including most of the loss-makers such as Blueprint, Valex Group and Handy Hire Trailers Pty Ltd.
Handy Hire Trailers was placed in receivership in late 2008 and the fund is believed to have taken a writedown of more than $1.8 million on its 20 per cent stake.
As losses continue to pile up in ANZ's private equity portfolio, it is no wonder Mr Smith has decided to pull the pin on the business.
In March this year, the ANZ CEO told BusinessDaily that the private equity arm was "a cottage industry" that was remote from the bank's core activities.
Separately up to 250 ANZ staff will have to apply for new roles within the bank after the company last night announced plans to restructure its mortgage processing operations.
In another cost-cutting move, the bank will next year outsource its mortgage processing functions to Perpetual and an undisclosed custody services provider.
The overhaul will take effect progressively over the next 12 months and will see at least 40 administrative positions relocated to ANZ's technology services centre in India.
The program will result in the closure of mortgage processing centres in Sydney, Brisbane, Adelaide, Perth and Hobart, but the bank said it was hopeful that most staff could be redeployed.
