Westpac share price: 2020 results and dividend examined

We examine the highlights from Westpac Banking Corporation’s just-released FY20 financial results.

Westpac share price edges lower on FY20 results

Westpac Banking Corporation (ASX: WBC) saw its share price dip after the retail-focused Australian bank reported its FY20 financial results to the market.

It’s been a roller coaster year for Australia’s banking complex, as ultra-low interest rates put extreme pressure on bank net interest margins (NIMs), regulators hone in on bank dividend policies, and the coronavirus pandemic tests the strength of the Big Fours’ balance sheets.

Indeed, Westpac was unable to evade these headwinds in 2020, reporting significantly lower profits, earnings and dividends as part of today's full-year annual report.

The bank’s Chief Executive, Peter King described the year as particularly challenging and said the bank’s financial result was a disappointing one.

Though 2020 proved to be a challenging year, Mr king also noted that progress has been made on making Westpac into a 'simpler, stronger bank', flagging a number of important changes that have been actioned in recent times, including: 'introducing a new operating model, progressing the exit of several businesses [and] adding more than 400 people to our risk, compliance and financial crime team.'

Despite such progress, the stock was bid lower during Monday’s session – down around 1.4% to $17.66 per share a little after noon. By 2:27PM the stock had pulled back somewhat, trading up to $17.91 per share.

For reference, a year ago WBC traded north of $27 per share.

The 2020 results in focus

As alluded above, Westpac reported steep earnings declines across the board in 2020 – revealing statutory net profits of $2,290m (-66%), cash earnings of $2,608m (-62%) and earnings per share (EPS) of 72.5c (-63%).

Much of this weakness can be pinned on the $1.3bn fine AUSTRAC handed down to Westpac as a result of breaches to the AML/CTF Act. Specifically, when excluding notable items, the bank's cash earnings were down a more mild 34%, to $5,227m; while its return on equity (ROE) came in at 7.69%. For reference, inclusive of notable items, WBC’s FY20 ROE came in at 3.83%.

Elsewhere, the bank reported a Common Equity Tier 1 (CET1) ratio of 11.13% – reflecting the continued strength of WBC’s balance sheet.

Finally and looking at how the pandemic has impacted the bank's loan book, Westpac reported that approximately 41,000 of its mortgage accounts are currently in deferral – equal to $16.6bn worth of loans. By comparison to Westpac’s housing loan book, the bank reported that just $1.0bn worth of small business loans were currently in deferral, across 4,300 customers.

The dividend

Today’s dividend announcement is likely to disappoint income-focused investors, with Westpac declaring a final dividend of 31 cps. In FY19 WBC paid a final dividend of 80 cps.

It should be noted however that this dividend is in-line with APRA’s recently updated capital management guidance – with the 31 cps dividend representing a 49% payout of FY20 profits.

The FY20 final dividend is set to be paid on 18 December.

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