Westpac Reports First Half Profits Drop, Cuts Dividend And Braces For Worse To Come

Post by Sharat on May 6, 2009 · Under Australian Economy, Capital Markets, Company News, Equities, banking, investments · Comment

Australian banking major and its largest bank by market capitalisation, Westpac Banking Corporation announced weaker than anticipated earnings on Wednesday as it saw charges for bad and doubtful debt triple. Westpac joined its rivals by reducing its dividend payment after reporting worse than expected numbers and warned more bad news would follow.

The result, the last banking major of the Australian big four to report, clearly shows that despite avoiding the worst of the global financial crisis and being in much better shape than international rivals, Australian banks are now in the midst of weathering a home grown storm with an economy that is in contraction.

According to the Reuters news agency, Westpac shares were up 3 percent in a flat market, despite the bank warning that the Australian economy was now entering a deep phase of recession which would hit all local banks.

Investors seemingly ignored the drop in earnings and cut to dividend and instead responded to Westpac’s balance sheet showing an 8.4 per cent tier one capital adequacy ratio which is the highest amongst the big four Australian banks, all of whom are rated AA.

For its part Westpac did not seem to be sanguine about the short term outlook for the future

“We think the economy will recover as we go into 2010, but our view is that the recovery will be quite fragile, quite slow. All Australian banks are going to feel that pressure,” Westpac Chief Financial Officer Phil Coffey told reporters

Mr. Coffey predicted that revenue growth, which was strong in the first half, was likely to run out of steam.

Westpac who last year acquired smaller rival St. George saw a 6 per cent reduction in cash earnings on a pro-forma basis, which consolidates St George’s earnings into the year-ago period to aid comparison.

On an unadjusted basis, which only accounts for St George earnings after the deal was completed in November, Westpac’s group earnings rose about 16 percent for the six months to March, at the lower end of analysts’ forecasts.

Bad-debt charges and other impairments tripled, on a pro-forma basis, to A$1.6 billion ($1.18 billion) from a year earlier, overshadowing a 15 percent jump in revenues and leading Westpac to cut its interim dividend by 20 percent to 56 cents a share, its first dividend cut since 1993.

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