It was the best of the updates from the big four banks: Westpac’s first quarter earnings were off only 2%, despite a very sharp rise in bad debt provisions, a big contrast to the 16% fall at the Commonwealth and warnings of similar falls from the NAB and the ANZ in their mid half updates 10 days ago.
As to be expected, Westpac joined its three peers in revealing exposures to the usual list of corporate failures: ABC Learning, Allco, and others.
The bank warned that its commercial loan portfolio was starting to creak and groan with the pressures from the slow down and the impact on property values, but the consumer finance portfolio remained strong.
But unlike overseas banking sectors, so far there’s not a sign of red ink, with corporate loans tanking and the broader business and property sectors seemingly about to add their contribution to the losses for banks.
The housing sector remains solid, as do credit cards, although the expected rise in unemployment will put pressure on those businesses at all banks in coming quarters.
Given Westpac’s update, the market had an each way bet. The news of only a 2% drop in first quarter earnings was a bull point, but the five fold rise in bad debts was the big concern.
Westpac said first-quarter revenues rose strongly but did not give a figure.
Westpac shares eased 30c or 2% to $16.48.
"Total lending was up 2.4% over the prior quarter, with particularly good growth in mortgage and business lending in Australia. However, lending growth in Westpac’s Institutional and New Zealand businesses was slower."
Westpac did not give any outlook and made no new comments on dividends except to say that the size of the payout will be reviewed by the board when it is time to consider it: that is after the books are ruled off for the half on March 31.
Media reports claimed the lack of any assurance was meant to raise doubts about the level of the interim payout at least.
Westpac’s first-quarter impairment charges came close to the $931 million in charges for the whole of last year.
“The overall dip in cash profit was on a pro-forma basis, which assumes the earnings of recently acquired St George Bank in the year-ago period.
"Strong growth in customer deposits was achieved over the prior quarter, up 9.6%" the bank said.
CEO, Gail Kelly said “Our underlying performance remains solid as we continue to support our customers in what is clearly a deteriorating economic environment.
"Group revenue was up strongly, particularly in net interest income with improved margins.
“Non-interest income growth was also healthy, although wealth revenues were weaker. Expenses are running at a marginally lower rate than the 2008 full year growth rate.
"Westpac continues to invest in targeted strategic initiatives.
"Impairment charges rose to $800 million for the December 2008 quarter, from $144 million in the prior corresponding period.
"The December quarter impairment experience was impacted by a $360 million increase in provisions for three large corporate exposures.
"While the first quarter was specifically impacted by these three problem exposures, asset quality in the corporate and commercial portfolio continues to deteriorate consistent with the weakening of economic activity.
“The Australian consumer portfolio continues to perform soundly with only a small increase in delinquencies."
"In the first quarter of 2009, Westpac delivered a robust performance in a challenging environment.
“While impaired and stressed exposures have increased over the period consistent with the continued deterioration in the operating environment, Westpac’s franchise is in sound shape.
"In particular, Westpac strengthened its capital position, raising over $3.8 billion in core equity over the last 4 months."
