ASB profit lost to tax and fraud

ASB is in the red for first time in more than 20 years by $10m

ASB Bank's first half profit was entirely swallowed up by Inland Revenue, bad debt charges and the cost of reimbursing victims of former employee and confessed fraudster Stephen Versalko.

ASB, a subsidiary of Australia's largest bank Commonwealth Bank of Australia, reported a statutory net loss of $10 million for the six months to December 31.

A spokeswoman said it was ASB's first loss in at least 21 years.

Pre-tax profit was $284 million but the bank paid out $209 million to the IRD during the period as part of its settlement with the tax authority over its use of "structured finance" transactions used to minimise tax in the late nineties and early last decade.

ASB's entire $264 million settlement with the IRD would have been enough to fund its "investment in local communities through numerous community partnerships" at present levels for 26 years.

The bank paid a further $85 million in tax on its operating earnings for the first half.

Excluding one-offs the bank's underlying net profit of $238 million was a 16.4 per cent decline on the same period a year earlier, which given the adverse conditions, was "a very solid result," said chief executive Charles Pink.

The primary driver of the reduction in underlying profit was the recession and its impact on borrowers' ability to repay loans. Bad debt charges for the period at $127 million were almost double the $67 million of a year earlier. Total provisions rose from $157 million a year ago to $340 million.

This was, said Pink, "nothing to be excessively concerned about". At half a percentage point of the bank's lending, "it is within the bank's expectations and low compared to local peers and internationally".

However, while ASB's parent CBA yesterday reported bad debt charges had peaked, Pink said they were still increasing on this side of the Tasman.

"We're beginning to get towards the bottom on that but it tends to lag the wider economy where we're not seeing a lot of pick-up."

Pink said ASB's result had also been affected by the cost of reimbursing clients who had lost money to fraudster Versalko. Versalko this month pleaded guilty to defrauding nearly 30 wealthy ASB clients of $17.7 million over nine years until he was fired last August.

Pink said he was unable to discuss details because of a suppression order.

Pink said the muted economic environment was reflected in the fact that ASB's lending grew at just 3 per cent over the year, compared to the double digit annual gains over the last few years.

But while total assets fell from $65.3 billion a year ago to $64.65 billion, net interest income rose from $483 million to $506 million. The banks net interest margin fell one basis point to 1.63 per cent over the six months to December but was up on the 1.5 per cent of a year ago.