First it was the Commonwealth, then Bendigo Bank, and yesterday Westpac joined the queue to reveal that profits in this now highly concentrated sector were better than at any other time, and we are not yet fully out of the slump.
The CBA’s interim result of $2.9 billion was a record and yesterday Westpac said its first quarter cash profit was $1.6 billion, up from $1.2 billion.
That’s a record, although the bank did not highlight the performance.
Monday the Bendigo and Adelaide Bank revealed a sharp rise in interim earnings as well, with cash profit up just over 24% to around $139 million.
Westpac shares jumped by 6.2%, or more than $1.40, yesterday to end at $24.74.
Other banks shares rose as well, especially the ANZ and the NAB which were both up by around 3% on the day. The CBA eased several cents.
Westpac CEO, Gail Kelly, was suitably cautious, but the result overwhelmed those reservations in the market.
"Although we remain cautious on the economic outlook, we believe that the worst of the crisis is now behind us and this is reflected in the significant fall in impairment charges," Ms Kelly said in a statement.
"Consumer asset quality remains strong although we expect a small increase in delinquencies throughout the year."
Westpac said customer margins declined by five basis points (0.05%) on the first quarter, driven by an increase in the average cost of funds.
Fee income was also lower after the bank reduced exception fees, in response to National Australia Bank which abolished its exception fees.
The merger with St George was progressing well with above system growth in lending and deposits.
Westpac raised $21 billion of term funding during the first quarter, with the average term of the issuance increasing to 4.8 years.
Average funding costs were continuing to rise because of the longer funding profile.
St George cost Westpac $16 billion in paper, and it has paid off.
While Ms Kelly is cautious, she doesn’t mention international events, such as the growing problems in Europe that could trigger more concerns about the global economy and markets and halt the tentative recovery.
And we should also keep in mind that the Australian economy takes a bit longer to recover, even if employment is growing strongly.
The NAB survey on business conditions was a surprise in that it found conditions had slowed significantly from December.
