Westpac defers dividend as H1 profit plunges

SYDNEY: Westpac Banking Corp said yesterday it would not pay a dividend in June, as it posted a 70% drop in firsthalf cash earnings and announced a strategic review of its underperforming wealth, pension investments and insurance units.

Hit by steep costs from a money laundering scandal and a surge in charges for bad loan provisions due to the coronavirus outbreak, Australia’s second-largest lender said it would postpone its decision on whether to pay an interim dividend and review its options over the course of the year.

The decision, expected by analysts after a similar move by Australia and New Zealand Banking Group last month, was prudent, the bank said, but acknowledged it would hurt many shareholders who rely on its dividends as a source of income.

The bank paid an interim dividend of 94 Australian cents last year and has paid one every six months for the past three decades, according to Refinitiv data.

“It was a disappointing result,” Peter King, who was promoted to chief executive officer in November, told analysts in a call. “We’re absolutely committed to turning around our performance ... and we are going to refocus on banking.”

The Sydney-based lender said cash earnings for the six months ended March 31 fell to A$993 million (US$636 million), less than a third what it earned last year, and below an average forecast from six analysts of A$1.22 billion.

The result was largely driven by pre-announced write downs of more than $2.36 billion due to the economic deterioration expected from the pandemic, and to cover a potential fine over accusations it enabled millions of illegal payments including between known child sex offenders.

On a cash earnings basis, net interest margin — a gauge of profitability — was 2.13%, marginally higher than last year.

Westpac also said that it would review whether underperforming businesses such as wealth platforms, retirement products, insurance, and auto finance businesses would be more successful under different ownership.

The units under review, which generate about 10% of group revenue, will form a new division.

“The businesses have not performed to the level of the banking businesses (and) have also absorbed a significant amount of management time,” King said. “As a result, we’ll focus where we have scale and competitive advantage, and that’s our banking businesses.”

The review would provide an opportunity to “release” some A$4 billion in regulatory capital, the bank said, which analysts estimate would add about 0.99% to its core equity capital ratio.

The lender is the only one of Australia’s four major banks to have retained such businesses in recent years, following a string of scandals stemming from some of those units.