Westpac Banking Corporation’s (WBC) full year result boosted the wider market yesterday, helping add to the FBI boost for Hillary Clinton’s campaign in tonight’s US Presidential elections.
The ASX 200 jumped 1.4%, with Westpac shares up 2.7% per cent. Other banks all posted gains, with Commonwealth Bank of Australia the biggest lift by index weight, up 2.2%, NAB shares were up 1.5%, but the ANZ dragged the chain with the shares edging up 0.3%.
Investors liked Westpac’s unchanged final dividend of 94 cents a share – it didn’t follow the ANZ and hack into its return to shareholders, nor did it join the NAB and ANZ in selling off assets, or waring of asset sales to come.
Westpac did lower its target for return on equity after the flat full-year profit of $7.822 billion, describing 15% as unrealistic in a low interest rate environment that has no end in sight. The new range is 13% to 14% (the return for 2015-16 was 14%).
CEO Brian Hartzer said previous benchmarks of profitability – such as the minimum 15% ROE introduced by his predecessor Gail Kelly in 2012, when she said 15% was a “line in the sand” for Westpac – no longer held.
“Given the current operating environment, including the expectation that low interest rates will continue for some time, the evolving regulations for capital and liquidity, and higher regulatory and compliance costs, the current 15 per cent ROE target for the group as a whole is no longer realistic," Mr Hartzer said.
"Westpac believes in maintaining strong return disciplines and will be seeking to achieve a ROE in the range of 13 per cent to 14 per cent in the medium term."
Cash earnings from Westpac’s BT Financial Group wealth management arm fell 4%, while those from its institutional bank fell 18%, largely because of $215 million in impairment charges.
Overall impairment charges rose 49%, mostly related to first-half downgrades, dragging statutory net profit down 7.1% to $7.445 billion. Impairment charges rose $A371 million to $A1.12 billion, with the increase primarily due to additional provisions following the downgrade of a “small number” of institutional customers in the first half of the financial year.
Cash earnings for the 12 months to September 30 from Westpac’s Australian consumer bank surged 14% to $2.981 billion thanks to a 3% rise in customers and 8% loan growth more than offset higher funding costs and increased competition.
Mr Hartzer said the bank was comfortable with its payout ratio of 80.3%, up from 75.4% a year ago as a result of the extra shares on market following the equity raising.
