Westpac Banking Corp (ASX: WBC) shareholders may be disappointed today after the bank revealed a $816 million profit hit.
FY20 second half earnings hit
Westpac’s second half earnings will be reduced by $1.22 billion after tax from ‘notable items’. These notable items include $816 million (after tax) of new items and $404 million of an already announced $404 million AUSTRAC provision.
In total, these items are going to reduce the bank’s CET1 capital ratio by 24 basis points, though some items don’t have an impact on capital.
There is going to be a writedown of goodwill and intangibles associated with Westpac Life Insurance Services and its auto finance business along with a writedown of capitalised software. The write downs amount to $568 million after tax.
There is an increase of $415 million after tax in the provision and costs associated with the AUSTRAC proceedings. This includes the previously announced $404 million in provisions for the court approved civil penalty and AUSTRAC’s legal costs.
Westpac said that there’s an increase in provisions for customer refunds, repayments, associated costs and litigation provisions of $182 million after tax. This is relating to the Hayne Royal Commission impacts.
Finally, the net impact of asset sales and revaluations will reduced cash earnings by $55 million after tax. This includes the revaluation of Life insurance liabilities and a less on the sale of its vendor finance business. But those items totalling $267 million were partly offset by the after tax revaluation (amounting to $212 million) of Zip Co Ltd (ASX: Z1P) shares. But Westpac recently announced it was selling these Zip shares.
Summary
Westpac continues to be affected by ‘one off’ items every six months – particularly the Royal Commission impacts. It’s hard to say how long those costs will continue to impact the bank’s results. It has been a couple of years, you’d think it would be over by now.
There isn’t much about Westpac that attracts me right now. The net interest margin (NIM) is under pressure. It isn’t paying any dividends at the moment, and it may not be good for a while. Bad debts may rise because of COVID-19 impacts.
I’d much rather buy ASX dividend shares that have better dividend growth prospects like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). You should bookmark the ASX dividend shares page so you can come back for more ideas.
