Monoline costs ANZ $200 million

The provision is taken against credit default swaps entered into between 2005 and February 2007 with the New York-based monoline insurer, whose bond ratings were cut from A to CCC by Standard & Poor's on December 19. Monolines have been in distress as they struggle to meet obligations on their asset-backed securities (ABSs) and collateralised debt obligations of ABS exposures to the struggling US subprime mortgage market.

In a shareholder update after four months of trading, released on February 18, the bank stated that it had no direct exposure to US subprime mortgages, and expects to write back a significant proportion of the provisions in future periods. ANZ chief executive Mike Smith said: “We believe the accounting treatment - which requires  that banks account for the losses on derivatives - overstates the likely loss over the life of the transaction.”

The credit crisis has also forced ANZ to add US$90 million to its provision that loans might fail, because of its dealings with an unnamed commercial property client that has suffered significant credit rating downgrades. A further US$51 million due to failures of a resources client was also added to the losses.

ANZ's interim results are due on April 23.

See also : Dragged down
Credit crisis losses could reach $400 billion
Monolines in a world of pain
Safe from subprime?