The Bank of Queensland Limited (ASX: BOQ) share price fell over 1% after the regional bank told investors about a hit to profit.
HY23 statutory profit sinks
The regional bank said that it is undertaking an ‘integrated risk program’ to “strengthen its commitment to risk management”. This is expected to reduce the FY23 half-year result’s profit by $60 million.
Also, after the bank reviewed how much it had as ‘goodwill‘ on its balance sheet, the bank decided to write-down $200 million. The majority of this writedown relates to the acquisition of Home Building Society in 2007.
BOQ said it doesn’t think the BOQ share price and its market capitalisation appropriately reflects the value of its assets and liabilities. The has increased the discount rate to determine the value in use. This “reduces the gap between BOQ’s market capitalisation and value in use of the cash generating units in which goodwill is associated.”
Statutory net profit after tax is expected to be $4 million in the FY23 first half, including the $260 million hit to profit mentioned above. That’s not great news for BOQ shares.
However, cash earnings after tax are expected to be $256 million.
The regional bank also announced that it has started work to simplify its operating model by reducing duplication and delivering “operational efficiencies”. This, combined with its integrated risk program and digital transformation is expected to deliver a stronger, simply, low-cost bank.
Dividend to be cut
BOQ announced that it intends to pay an interim dividend per share of $0.20 per share. That represents a cut of around 9%.
Two dividends of $0.20 per share, being $0.40 per share, would represent a dividend yield of 6.25%, excluding the impact of the franking credits.
Management commentary
The BOQ Managing Director and CEO Patrick Allaway said:
BOQ is in a strong financial position supported by increased capital and liquidity buffers, cash earnings and sound asset quality with prudent risk settings. The investment in our Integrated Risk Program will further strengthen our operational resilience. Our shifted focus on strength and simplification whilst digitising BOQ is designed to deliver a low-cost bank with strong foundations.
Final thoughts on the BOQ share price
It’s not a great look to see profit fall so heavily, though the bank clearly believes that it’s the right thing to do.
The dividend income is still very strong, but a cut is not ideal.
It’s not one of the ASX dividend shares that I’d want to own in my portfolio. There are other names I think can provide more defensive investment income.