A not unexpected weak interim result from Westpac with the country’s second biggest bank reporting a fall in earnings from a year ago as its cost cutting campaign kicked into gear.
While Westpac highlighted the improvement from the September second quarter of 2020-21, the more accurate and usual comparison with the first half of last financial year showed a weaker result.
Westpac reported cash earnings of $3.095 billion for the latest half which were down 12% from a year ago, but up 71% from the September half.
Statutory profit fell 5% from the first half of last financial year to $3.280 billion but Westpac pointed out that was up 63% from the six months to September.
Regardless of the half year comparison, revenue was down 4% from a year ago and 3% from the final half of the 2021 financial year.
The emphasis on the comparison with the second half of last financial year was made to try and convince investors that Westpac was making strikes towards cutting costs (down 27%, with 4,000 jobs cut) which had been a major concern for investors last year.
Those numbers should help convince investors the bank is serious about reducing its cost base as quickly as possible.
To help win over sceptical investors, the bank lifted interim dividend to 61 cents a share from 58 cents a year ago and 60 cents in the final half of 2020-21.
Net interest margin in the latest half was 1.91%, down from 2.06% a year ago.
In a statement with the results, CEO, Peter King said we’ve made steady progress towards our goals. We’re managing through the low-rate environment and making the changes required to become a simpler, stronger bank.”
“Financially, the Group’s results have improved. Cash earnings were higher over the previous half, including a material reduction in notable items.
“The decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year.
“Asset quality has improved and most credit quality metrics are back to pre-COVID levels, however we increased overlays in our provisions for supply chain issues, inflation, expectations of higher interest rates and recent floods.
“We are tracking well on our strategic priorities…our cost reset program helped to offset a decline in revenue and an increase in impairments.
“The multi-year Customer Outcomes and Risk Excellence (CORE) program is delivering to plan and we resolved a number of significant regulatory matters. Our portfolio simplification saw two more businesses sold, with our focus now on the exit of the BT businesses.
I’m pleased with our progress on costs which are down 27%, or 10% excluding notable items, compared to the second half of 2021. This includes a reduction in headcount of more than 4000 as we track towards our target of an $8 billion cost base by FY24,” Mr King said.
