The Westpac (ASX: WBC) share price has fallen in response to more announced Royal Commission costs, is a dividend cut ahead?
Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and businesses.
What Has Westpac Announced?
Westpac has announced that its second half of FY19 cash profit will be reduced by $341 million because of Royal Commission customer remediation programs.
The bank also announced $36 million of ‘wealth reset’ costs, bringing the total of this new earnings hit to $377 million. Along with the $753 million of costs from the first half, FY19 will include $1.13 billion of costs. That’s an expensive year.
Westpac CEO Brian Hartzer said: “A key priority in 2019 has been to deal with outstanding remediation issues and refund customers as quickly as possible. The additional provisions announced today are part of that commitment.
“As part of our ‘get it right put it right’ initiative we are determined to fix these issues and stop these errors occuring. We will continue to review our products and services to ensure they deliver the right outcomes for customers, and if necessary, making further provisions.”
IFTIs Update
Westpac also said that last year it disclosed a contingent liability relating to failing to report a large number of International Funds Transfer Instructions (IFTIs), as required by Australia’s anti money laundering and counter terrorism laws. Today it gave an update about this matter.
IFTIs are meant to be reported to AUSTRAC within 10 business days of the instruction being sent or received. The majority of the IFTIs that Westpac is engaging with AUSTRAC about are between 2009 to 2018 and relate to a small number of banks for payments made to beneficiaries in Australia which Westpac received. The majority of the payments were from foreign pension funds and corporates.
AUSTRAC has issued a number of detailed statutory notices over the past year requiring information about Westpac’s processes, procedures and oversight and relate to various reporting failings.
Westpac warned that enforcement action by AUSTRAC could include a significant financial penalty.
Danger For Westpac’s Dividend?
The above two issues could see Westpac decide to be a bit more prudent with the dividend. It needs to weigh up the need for its capital requirements against the income needs of shareholders.
I think there’s now a fair chance that Westpac may cut its dividend, so I wouldn’t buy it with the expectation that the last 12 months of dividends will be the same as the next 12.
For dividends I would rather buy the shares of the reliable businesses in the free report below.
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