Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Australia's Westpac takes hit to margins, shares tumble despite buyback

Published Oct 31, 2021 05:19PM ET Updated Nov 01, 2021 12:50AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: An office building with Westpac logo is seen amidst the easing of the coronavirus disease (COVID-19) restrictions in the Central Business District of Sydney, Australia, June 3, 2020. REUTERS/Loren Elliott

By Paulina Duran

SYDNEY (Reuters) -Westpac Banking Corp on Monday disappointed investors hoping for a quick restructure at Australia's No. 3 lender, revealing big cuts in margins and still-high expenses, knocking its shares sharply lower.

Westpac reported cash earnings for 2020/21 of A$5.35 billion ($4.02 billion), just below expectations but more than twice last year's result after the release of funds set aside for pandemic losses, and announced a A$3.5 billion share buyback.

However, its shares sank more than 6% to an eight-month low as investors pointed to the fall in margins, particularly in the second half, and higher expenses, which put pressure on core earnings.

"Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be," Chief Executive Peter King said.

Westpac is slowly emerging from a costly turnaround https://www.reuters.com/article/australia-banks-westpac-int-idUSKBN27T0IB to fix outdated software and convoluted procedures that led last year to record fines for breaches of anti-money laundering law and market-share losses in mortgages, it's main product.

"They are on a far better footing going forward, but the market has focused on the cost of rectification rather than the benefits that flow from this," said Regal Funds Management portfolio manager Mark Nathan.

"I think the market expects most of the cost benefit to flow through in 2023 and 2024, rather than through the 2022 fiscal year," he said.

MARGIN PRESSURE

A rebound in the Australian economy and sky-rocketing house prices helped drive a 4% rise in Westpac's mortgage book after a decline last year, but the growth came at the expense of margins.

Net interest margin, a key measure of profitability that measures the difference between what banks charge for loans and what they pay, fell 10 basis points during the second half, to 1.99%. For the full year, it was 4 basis points lower at 2.04%.

In the second half, cash earnings fell at all the bank's business units, including retail and business banking, institutional banking and its New Zealand subsidiary. Core profit, excluding a pre-announced A$1.3 billion hit from Westpac's institutional bank and remediation costs, was 13% lower for the year.

"We expect significant consensus earnings downgrades on the back of today's result," Macquarie banking analyst Victor German said.

Westpac CEO King said competition was likely to put further pressure on margins.

Smaller rival Australia and New Zealand Banking Group, last week reported https://www.reuters.com/world/asia-pacific/australian-lender-anz-posts-65-jump-annual-cash-profit-2021-10-27/#:~:text=SYDNEY%2C%20Oct%2028%20(Reuters),induced%20boom%20in%20home%20lending flat margins but a shrinking loan book, missing out on the pandemic-induced boom in home lending, and vowed it would prioritise re-growing its home lending business.

Westpac's King also reiterated his commitment to cutting the bank's cost base https://www.reuters.com/article/westpac-results-idUSL1N2MQ00W by over a fifth to A$8 billion by fiscal 2024, a key part of his strategy. Still, that is far from the A$11 billion in costs it reported on Monday that excluded an A$2.3 billion one-off "notable" charge.

Westpac said it expects demand for credit to remain high, although home price growth would likely moderate to about 8%, King said, given tighter restrictions on home lending https://www.reuters.com/world/asia-pacific/australia-banking-watchdog-tightens-home-loan-requirements-2021-10-05.

The bank declared a dividend of A$0.60 a share.

($1 = 1.3319 Australian dollars)

Australia's Westpac takes hit to margins, shares tumble despite buyback
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
John Hat
John Hat Oct 31, 2021 11:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I'm not investing in prison island.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email