Westpac Profits Drop 70%, Suspends Dividend

Key Takeaways:

-Westpac Profit Drops 70%

-First-half dividend has been suspended

-$900 million set aside for potential AUSTRAC penalty

-Westpac shares have dropped 37% in 2020

Westpac bank has revealed the scope of its lackluster first quarter of 2020, confirming that its cash profits dropped 70% in the wake of a money-laundering scandal and high-interest rates on bad debt.

The bank was hit by a money-laundering scandal last November, launched by the financial regulator, AUSTRAC, and has said that the impairment charges from the scandal as well as COVID-19 now stand at $2.4 billion; an increase of $1.9 billion. Westpac has reportedly set aside $900 million for a potential AUSTRAC penalty

Westpac has now joined the likes of ANZ Bank in stating that it will suspend its first-half dividend, after reporting a $993 million cash profit, more than two-thirds lower than its previous profit report. The NAB has also cut its dividend by a whopping 64% to just 30 cents per share after following the guidance of regulator APRA who told banks and insurers to forgo dividend payments for the near future.

In the first half of 2019, Westpac paid shareholders a dividend of 94 cents per share. Amidst the coronavirus pandemic, money laundering scandal and a drop in consumer confidence, Westpac shares have dropped 37% this year.

Westpac’s Chief Executive, Peter King has said that “this is the most difficult result Westpac has seen in many years. It is significantly impacted by higher impairment charges due to COVID-19, as well as notable items including the AUSTRAC provision.”

“This was a difficult decision given many retail shareholders rely on Westpac dividends,” he said.

“Business and consumer confidence have fallen sharply,” King added. “A sustained recovery cannot be expected until the December quarter, although we expect caution to prevail well into 2021. House prices are expected to fall through the remainder of 2020, reversing the recent recoveries, particularly in Sydney and Melbourne,” he said.

According to reports, “Mr King also flagged potential asset sales, saying it had re-hired former Westpac executive Jason Yetton to oversee a review of businesses including wealth platforms, superannuation and retirement products, investments, general and life insurance and auto loans. The business would be put into a new division and could be sold off, the bank said.”

Westpac is anticipating further fallout from the COVID-19 pandemic, as home and personal loans are likely to be hit hard due to the scale of the economic hit to the world’s economy. Australia’s ‘Big Four’ banks have all released loan repayment deferrals, as well as emergency loans to hundreds of thousands, with Westpac stating that 105,000 of its mortgage accounts - worth in excess of $39 billion - have officially been put on hold, as well as 31,000 business loans worth around $8.2 billion.

Peter King was appointed as head of Westpac last month, after former CEO, Brian Hartzer was forced to resign amid the AUSTRAC legal case, which alleges Westpac facilitated as many as 23 million breaches of money laundering best practices, and failing to analyse transactions that in some cases were linked to child exploitation.

Since his appointment, Mr King has said Westpac will improve the state of its risk management, which is a top priority for the bank.

Last week, ANZ Chairman, David Gonski denied any suggestion that not paying a dividend to shareholders was a sign the bank was struggling financially. “The board agrees with the regulator’s guidance that deferring a decision on the 2020 interim dividend is prudent given the present economic uncertainty and that making a decision at this time would not have been appropriate.”

“This was a very difficult decision and the Board considered all options available as we understand the impact this will have on those shareholders who rely on dividends,” he said, as the bank launched a $3.5 billion equity raising campaign.

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