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Westpac share price rises despite flagging H1 earnings hit

Below we examine the bank’s latest market update.

Westpac Banking Corporation (ticker: WBC) today revealed a number of notable items that would impact its first-half earnings. The impact of these items has been estimated to be approximately $282 million.

Despite that news, the stock actually rose on Monday, trading half a percent higher by the afternoon session. The Westpac share price has been on a tear recently, gaining 35% in the last six months alone.

Trading Update in focus

Centrally, the retail-focused bank today told the market that it expected its interim cash earnings, on an after tax basis, to be reduced by $282 million, as a result of a number of notable items.

Statutory net profits will also be impacted by these notable items.

Term Check: A notable item refers to a non-recurring gain or loss that may have a significant impact on a company’s operational results.

Included in the list of notable items were:

  • $220 million in further provisions related to customer refunds, payments, litigation provisions and associated costs
  • $115 million from writing down 'capitalised software and other intangibles'
  • $56 million in total exit costs from the bank's relationship with IOOF

Westpac terminated its master relationship agreement with IOOF last December, with the bank at the time saying:

‘Westpac and IOOF have worked collaboratively to reach the agreement while supporting IOOF advisers and clients to transition to the market leading BT Panorama platform.’

  • $84 million from the 'write-down of goodwill related to Lenders Mortgage Insurance'
  • $113 million related to a loss on the bank’s sale of Westpac Pacific, in addition to transaction costs

The impact of these notable items were partially offset by gains made on Westpac selling its Zip holdings as well as net gains booked on its Coinbase investment.

The Coinbase IPO represents one of the largest listings of recent times. At current price levels, Coinbase has an implied market capitalisation close to US$60 billion, making it one of the most valuable publicly listed exchanges in the world.

At one point, Westpac’s Reinventure fund No.1 held ~1.2 million shares of Coinbase, though that exposure has been approximately halved following the IPO.

Westpac pointed out that the majority of the notable items (in terms of value) had been previously announced in the bank's first quarter trading update.

The bank is set to report its interim results on Monday, May 3.

Heading into those results, the bank remains overwhelmingly liked by analysts, carrying a Buy rating on average, according to Market Index.

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