Westpac has gone against the trend in reporting a fall in first quarter cash earnings, unlike the NAB and the Commonwealth last week.
Westpac reported first-quarter cash profit of $1.55 billion, down from $1.6 billion a year ago.
The shares lost 11c to close at $24.19, trading lower for most of the day’s trading.
In fact when Westpac Bank officially committed itself to the St George Bank bid in May 2008, the shares traded as high as $25.97 that month.
On Monday of this week, the shares closed at $24.42, not the best of returns for the outlay of more than $16 billion in cash and shares for the purchase of St George, notwithstanding the impact of the GFC.
The bank’s shares continue to be depressed by a feeling among investors that Westpac is either suffering from a sluggish economy (more than the others), or has cost and operational problems from the St George merger that have yet to be resolved.
Westpac didn’t help its image yesterday by burying the comparison for the first quarter profit and trying to pass off the wrong basis for that comparison.
It was ‘spinning’ and might be a small issue, but it does show the bank is trying to put the best complexion on what was a poor result, compared to the NAB and the CBA.
Instead of the normal corresponding quarter comparison, Westpac and CEO Gail Kelly preferred to compare the latest quarter with the final two quarters of 2010. On that basis December quarter cash earnings were up 5%.
In fact it wasn’t until the 4th paragraph of yesterday’s press statement that we got the correct comparison and news of the small fall.
"The 1Q11 result was lower than the $1.6 billion cash earnings reported in 1Q10 as that quarter was boosted by high Treasury and Markets income," Ms Kelly said,
"Across the group underlying momentum is building as our customer-focused strategy begins to deliver.
"The operating environment is positive, although the recent natural disasters and subdued consumer sentiment are likely to see businesses remaining cautious.’’
The bank’s operating income grew 2% and the net interest margin increased three basis points to 2.2%.
Total lending increased by 3% as growth in mortgages was offset by declines in loans to institutions and large corporates.
Customer deposits grew $8 billion in the quarter with growth across all segments.
Westpac said it had a strong performance in wealth, despite the impact of higher claims in general insurance.
Asset quality had been improving, with impairment charges falling to about $280 million for the quarter, but while that fall for the CAB and NAB helped boost earnings, it did nothing for Westpac.
Total provisioning increased $58 million to $5.119 billion.
Westpac said the initial impact of the Queensland floods was about $50 million in pre-tax earnings in the first quarter, composed of an economic overlay of about $40 million and claims costs of $10 million.
At least the NAB lifted its first quarter earnings, to around $1.3 billion, compared with the same quarter of 2010.
And buried in the press statement was perhaps the biggest clue as to why the result lacked punch and credibility.
"Lending growth in St.George was lower, due principally to the repositioning of the business over 2010 to reduce its reliance on brokers and to reduce its exposure to commercial property. Despite this, growth in St.George lending has been below expectations and is being addressed."
Ms Kelly ran St George, was head hunted from there and then drove the takeover and merger.
Westpac has already reported higher than expected write-offs of bad debts at St George, now it’s not performing in the key business for all banks, lending.
That’s another problem for Ms Kelly and the Westpac board, who all wanted the merger to happen.
