Bloomberg News

Westpac Full-Year Profit Misses Estimates on Bad Loan Costs

November 05, 2012

Westpac Banking Corp. (WBC), Australia’s second-biggest lender, reported full-year profit that missed analyst estimates as costs for soured loans rose 22 percent.

Net income fell 15 percent to A$5.97 billion ($6.19 billion) in the 12 months ended Sept. 30, the Sydney-based lender said in a stock exchange statement. The median forecast of eight analysts surveyed by Bloomberg was for a profit of A$6.29 billion. Cash earnings rose 5 percent, the bank said. Westpac shares increased 1.3 percent to A$25.35 in Sydney today, while the benchmark S&P/ASX 200 Index climbed 0.3 percent.

“The result doesn’t blow the lights out but it doesn’t need to either,” Peter Esho, chief market analyst at City Index Ltd. in Sydney, said in an e-mailed note. “Cost control will become more important in 2013 and unfortunately this probably means Westpac will further reduce its staff base,” after a 5 percent reduction during the year.

Australian banks are trimming expenses as higher funding costs squeeze profit margins and fragile consumer and business confidence weigh on loan demand. Westpac’s net interest margin, a measure of the profitability of its lending, fell 5 basis points to 2.17 percent in the 12 months to Sept. 30, it said.

Westpac’s impairment costs rose by A$219 million from a year earlier, according to the statement. Tax expenses surged 94 percent, with the prior period affected by a one-time tax benefit from the lender’s takeover of St. George Bank.

Economic Slowdown

“A gradual softening of global economic activity has continued to weigh on domestic business and consumer confidence,” Westpac said in its statement. “These economic shifts are part of broader structural changes for the banking sector which also include significantly increased regulatory demands and costs.”

Cash earnings, which exclude special items, rose 5 percent to A$6.6 billion, on revenue that climbed 6 percent, it said. St. George today reported cash earnings were unchanged at A$1.2 billion.

Shares of Westpac have gained 27 percent this year, compared with a 10 percent gain in the benchmark S&P/ASX 200 index. Australia and New Zealand Banking Group Ltd. has advanced 23 percent, Commonwealth Bank of Australia gained 17 percent and National Australia Bank Ltd. (NAB) rose 6.3 percent.

Westpac will pay a dividend of A$1.66 a share for the year, up 6 percent from 2011, it said.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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