Australian Lender Westpac Seeks To Raise $1.7b As Profit Slides 15%

Westpac Banking Corp is looking to raise A$2.5 billion ($1.73 billion) in capital from shareholders after reporting a 15% slide in full-year cash earnings and making its first dividend cut in a decade.

Australia’s No. 2 lender plans to use the additional funds to beef up its capital levels to meet tougher Australian regulatory requirements.

The country’s “Big Four” banks are having to hold more capital at a time of record low interest rates and increasing competition. They also have a collective bill of about A$8 billion in one-off charges to compensate customers for wrongful practices exposed by a government-backed inquiry into the financial sector.

“2019 has been a disappointing year,” Westpac Chief Executive Brian Hartzer said in a statement. “Financial results are down significantly in a challenging, low-growth, low interest rate environment.”

Westpac slightly missed analysts’ expectations with cash earnings of A$6.85 billion for the year ended Sept. 30, down from A$8.07 billion a year earlier and below the A$6.89 billion average forecast by six analysts polled by Reuters.

The final dividend was cut by 14.9% to 80 cents per share.

“The decision to reduce our second half dividend … was not easy,” Hartzer said. “However, we felt it was necessary to bring the dividend payout ratio to a more sustainable medium-term range given the capital raising and lower return on equity.”

Hartzer said the capital raising would provide flexibility for any future changes in capital rules and potential litigation or regulatory action.

Trading in Westpac shares was halted until Nov. 5 to allow for the pricing process for the new shares issue.

Westpac had warned weeks ago of a A$377 million hit to earnings in the second half, mainly because of customer remediation charges.

Excluding one-off items such as provisions for those charges, Westpac’s cash earnings were down 4% to $7.97 billion, the bank said, as it booked lower earnings in all but its New Zealand unit, where cash earnings were up 3% for the year.

Expenses were 3% higher than a year earlier, despite the bank reducing its workforce by 5% or 1,700 people. Stressed loans increased 12 basis points to 1.2 percent of loans, the highest level since 2016.

Credit Suisse analysts said in a note that the capital raising and dividend cut addressed “two of the key overhangs” but the guidance on costs “would appear to be worse than expected.”

Westpac scrapped this year’s short-term bonus for Hartzer, valued at a maximum A$4.02 million. He still received A$4.01 million in cash this year, comprised of his A$2.68 million salary and A$1.32 for the vesting of previous bonuses.

Reuters