Westpac has joined the NAB in revealing a huge boost to its impaired loans charge for the six months to March 31, a move that could see the bank report a statutory loss for the half or at best a very weak profit.
Westpac said on Tuesday that its first-half profit will take a $2.238 billion hit from provisions for soured loans, including a $1.6 billion impairment caused by the coronavirus pandemic (to its forward reserves).
Tuesday’s update was promised in the April 14 statement revealing $1.43 billion in charges against profit for the half, with around $900 million coming from the 23 million breaches of money laundering laws claimed by AUSTRAC which Westpac still has to settle. Some $260 million in charges related to compensation of customers arising from the Hayne royal commission.
That means total charges and impairment costs will top $3.6 billion for the half year.
Westpac reported cash earnings of $3.296 billion a year ago, so there is a possible statutory loss in the offing. Westpac has not said how the bank’s earnings went in the half-year.
Westpac did not mention interim dividends or earnings, we can take it those details have yet to be worked out ahead of the release of the results next Monday, May 4.
Westpac shares were up 4% to $15.26 at 11 am.
NAB surprised on Monday with news of a 60% cut to its interim dividend, a 51% slump in interim cash earnings to $1.41 billion, and a fundraising of up to $3.5 billion (which should be completed on Tuesday).
NAB also added $1.61 billion to its impaired loans provisions, including more than $800 million directly related to the impact from the virus which were added to its forward reserves.
In its statement yesterday, Westpac said its balance sheet was “well-positioned” to absorb the increase, as banks use capital buffers built up to make them more resilient to shocks.
“The $1.6 billion addition to the impairment charge has a relatively small impact on the Group’s common equity tier 1 capital ratio capital (11 basis point decrease). This is because the higher charge lifts provision levels and reduces the regulatory expected loss capital deduction to nil. Westpac’s CET1 capital ratio at 31 March 2020 is expected to be 10.8%,“ Westpac explained.
“The world is going through a once in a life-time health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period,” chief executive Peter King said.
Mr. King said relief packages were helping, but some of its business customers “may not re-open” after the governments ease their lockdowns to counter COVID-19.
“Westpac notes that the COVID-19 outbreak is still in its early stages and the impact on customers, along with future impacts on the bank, remain highly uncertain,” the bank said on Tuesday.
“While impairment provisions have begun to increase, the extent of additional charges in subsequent periods will depend on the severity and duration of the decline in economic activity and the size and effectiveness of stimulus measures. The Group will reassess its provisioning levels as developments unfold,” the bank said.
Westpac shares were up 4% to $15.26 at 11 am but faded to close up 1.7% at $14.92.
The NAB raised its $3 billion without pressure yesterday and the shares re-listed. They dipped 2.8% to $15.32, well above the issue price of $14.15 and the 8.2% discount to the last price before the announcement.
In other words takers of the $3 billion placement made a $1.17 a share in less than a day. Nice!
