The Westpac (ASX: WBC) share price will be under scrutiny today after the major ASX bank outlined a $1.43 billion profit hit. In early trading it’s down 1.6%.
What is Westpac?
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 business.
What did Westpac announce?
The bank announced new and expected provisions, which excludes impairment provisions, and asset write-downs totalling $1.43 billion after tax which will hit cash and statutory profit.
It’s also undertaking detailed analysis for impairment provisions due to the COVID-19 outbreak. It’s expected to be a “significant” collective provision. This will be announced once finalised, before the May result release.
The items announced today are expected to reduce the CET1 capital ratio by around 30 basis points (0.30%).
Those profit provisions and write-downs were:
$1.03 billion after tax relating to provisions and costs associated with the AUSTRAC proceedings and response plan.
A $260 million after tax increase of provisions for customer refunds, repayments and litigation.
A reduction in the value of several assets costing around $70 million after tax.
Costs of changes in the provision of group life insurance of around $70 million after tax.
Westpac CEO Peter King said: “Having spent much of the last decade strengthening our capital we are well placed to respond to the unfolding environment.”
Is Westpac a buy?
The bank is clearly going to cut its dividend in the upcoming result. Who knows by how much? I’d guess at least 25% but it could be by more than half.
I think we need to ignore the dividend for now. Is the share price a buy? It’s low, but the risks are high and hard to quantify. I’d rather buy these tech shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
