Westpac in shock $1.3bn writeoff
WESTPAC will take a $1.6bn hit to its full-year profit after slashing the value of its institutional bank goodwill to zero and topping up its provisions for customer refunds and litigation costs as it braces for further regulatory action from the corporate cop.
The bank on Tuesday surprised the market with $1.3bn of writedowns and provisions on its second-half profit, adding to the $300m already put aside for customer refunds and legal costs.
A $965m writedown of assets in its institutional bank followed an annual impairment test of the division after it consolidated its Asian operations and exited energy trading.
The lender will take a $487m goodwill impairment charge on the division, slashing its goodwill to zero, while also writing down the value of its capitalised software by $344m and other assets, mostly property leases, by $325m.
It expects the impairment charges to reduce its CET1 capital ratio by around 15 basis points, with the writedown of goodwill and capitalised software having no net impact on regulatory capital.
Investors will be hoping the profit hit does not affect the bank’s decision on a buyback or its second-half dividend as it prepares to hand down its fullyear numbers on November 1.
Chief executive Peter King said the one-off items reflected the bank’s simplification drive as well as the operating environment.
“While 2021 has been a better year for us than 2020, we are still dealing to a number of historical issues,” he told staff.
“Over the last year we have
simplified and reduced risk in WIB through exiting energy trading, consolidating our Asian offices and reducing our correspondent banking relationships.
“While these actions have reduced risk in WIB, they have also reduced revenue.”
Simplifying and strengthening the institutional business would set the bank up for success as market conditions improve, he added.
“The writedown has no impact on our business or customers,” Mr King said.
The writedowns will be partly offset by a gain on the sale of Westpac General Insurance, and a reversal of the previous writedowns associated with the sale of the Westpac Pacific. “The valuation of our WIB division did not support the carrying value of its assets (mostly intangibles).
“This was partly due to reducing risk in the division through the exit of energy trading, consolidating our Asian operations and reducing our correspondent banking relationships which have all impacted earnings.”
Westpac has also topped up its provisions for customer refund payments.
Citi analyst Brendan Sproules said the announcement was a case of accounting “catching up with reality”.
Westpac shares fell 1.65 per cent at $25.63.