The Westpac Banking Corp (ASX: WBC) share price is on watch today after revealing more costs amounting to $282 million.
What is costing Westpac $282 million?
Westpac said that its cash earnings for the first half of FY21 is going to be reduced by a number of notable items. Statutory earnings is also going to be reduced by these items.
The big ASX bank said that its upcoming result will include additional provisions for customer refunds, payments, associated costs and litigation provisions for $220 million. Essentially, this adds to the hundreds of millions of dollars of costs that has already been incurred from wrongdoing which was uncovered in the Financial Services Royal Commission.
Westpac said that some remediation programs are taking longer to complete.
Next, there’s $115 million for the write-down of capitalised software and other intangibles.
There are $56 million of costs associated with ending the bank’s relationship with IOOF Holdings Limited (ASX: IFL).
Then there’s a $84 million for the write-down of goodwill related to lenders mortgage insurance.
The final notable item cost is an accounting loss on the sale of Westpac Pacific amounting to $113 million.
However, these losses were partly offset by two items. There was a net gain on the revaluation of Westpac’s investment in Coinbase of $288 million and a gain on the sale of its shares in Zip Co Ltd (ASX: Z1P) for $18 million.
Changes to software capitalisation policy
Westpac said that it had changed the threshold before a project is capitalised to $20 million (up from $1 million). It has been applied from 1 October 2020 and will see the bank expense a higher portion of its investment spending in the first half of FY21 onwards.
Summary thoughts
Westpac’s profit continues to be haunted by the past with remediation costs. How much more is left? It’s hard to say, but what it’s repaying now is reducing the capital and potential dividends for shareholders today.
I wouldn’t be happy if I were a shareholder because that money could have been paid out as a dividend in FY21. The Westpac share price has performed strongly over the 12 months, so I wouldn’t call it a bargain opportunity.
