What’s the outlook as Westpac's cash earnings crash 70%?
We look at some of the key figures from Westpac’s first-half earnings report.
It’s been a brutal week for Australia’s big four banks – save for CBA – which doesn’t report its third quarter results until 13 May.
To briefly summarise the carnage thus far: NAB slashed their dividend but didn’t cull it completely, while also tapping the market for $3.5 billion in fresh capital; ANZ, reporting its first-half results last Thursday, deferred their dividend and announced that the bank’s H1 cash profits had fallen a staggering 60%.
Westpac today, also reporting their half-yearly results, outdid ANZ on the cash profit front, revealing that their H1 cash earnings had crashed 70%, to $993 million.
At the very least Westpac noted that it wasn’t tapping the markets for fresh capital, though the bank did say it would be deferring its interim dividend given the current economic environment.
Looking forward, the bank said it will 'continue to review dividend options over the course of this year.' However, no further specifics, or an exact timeline was provided.
Westpac’s FY19 interim dividend came out at 94 cents per share.
Interestingly, off the back of these results, the Westpac (WBC) share price was bid higher by investors: As of 15:10 AEDT, the stock was up 3.59%, to $15.89 per share.
Westpac share price: first-half results in focus
Looking at some of Westpac’s key H1 metrics, as noted above, earnings fell sharply, impairment charges rose significantly and the bank’s interim dividend was deferred.
On the bottom-line, WBC posted a first-half statutory net profit of $1,190 million, implying a decline of 62%; while the bank’s cash earnings came in lower at $993 million, down 70%.
However, as the bank stressed, when excluding provisions associated with AUSTRAC proceedings as well as 'estimated customer refunds, payments, associated costs and litigations', Westpac's H1 cash earnings come in at a more respectable $2,278 million, though still down 44%.
All up, Westpac’s CEO – Peter King – noted that this was an incredibly difficult result for the bank, with Covid-19 impairment charges significantly impacting the results.
Even so, Mr King was keen to point out that Westpac’s balance sheet was strong and the bank well-capitalised.
'Customer deposits were up $19 billion over the half, more than funding loan growth which increased by $5 billion. The deposit to loan ratio is now over 97 per cent.’
Westpac’s CET1 capital ratio stood at 10.8% for the half.
The outlook: uncertainty dominates
Looking forward, Westpac’s economists believe that unemployment will rise during the year and that dwelling values in Sydney and Melbourne will fall.
Moreover, given the uncertain economic outlook, it was noted that, 'we have increased Westpac's provisions for expected credit losses to $5.8 billion, which includes approximately $1.6 billion of additional impairment charges predominately related to COVID-19 impacts.'
In spite of these increased provisions, the Westpac CEO said:
'Importantly, while the remainder of the year will be challenging, Westpac is well placed to continue to support customers through this difficult time.’
How to trade Westpac – long or short
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