The Westpac Banking Corp (ASX: WBC) share price is under the spotlight today after the bank announced the notable items that are going to impact FY21.
What did Westpac announce?
The big bank said that its reported net profit and cash earnings in the second half of FY21 will be reduced by around $1.3 billion (after tax) due to notable items.
Costs
There were a few different items that the major bank outlined:
A $965 million write-down of assets (goodwill, capitalised software and certain other assets) in the Westpac Institutional Bank (WIB) after the annual impairment test to see if assets are still worth as much as the balance sheet stated.
Next, additional provisions for customer refunds, payments, associated costs and litigation provisions for $172 million.
Also, Westpac noted there would be previously-announced separation and transaction costs along with a deferred tax asset write-off relating to the agreed sale of the Westpac Life Insurance Services business for $267 million.
Finally, Westpac said there would be other costs of $24 million associated with the sale of its specialist businesses.
Positives
However, Westpac did say that the above costs and charges in its accounts would be offset by a couple of things as well.
One item was a gain on the sale of Westpac General Insurance of $55 million.
The other item was a reversal of the previous write-downs of $54 million associated with Westpac Pacific as the business is no longer held for sale.
Impact on its capital ratios
Westpac said that in total, the above items are expected to reduce its common equity tier 1 (CET1) capital ratio – a measure that essentially shows one statistic of how safe the bank’s balance sheet is – by around 15 basis points (0.15%).
Management pointed out that that write-down of goodwill and capitalised software has no net impact on regulatory capital as they are already capital deductions.
Summary thoughts on Westpac and the share price
These sorts of accounting adjustments are common in such huge, complicated businesses like the big four banks of Westpac, National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA). Though $1.3 billion is a pretty big total for accounting changes.
The Westpac share price has risen by around 40% over the last 12 months, so I’m not sure I’d call it good value today. Particularly because of how much fintechs are coming for the market share of big banks – this could be a trend for many years ahead.
There are other ASX dividend shares that I’d rather be looking at for more chance of dividend growth in the long-term.
