Westpac Banking Corp capped a horror year for Australia’s banks with its worst earnings since the global financial crisis.
The country’s second-largest bank plans to tap shareholders for A$2.5 billion (US$1.7 billion) in new capital and slashed its dividend, as full-year cash profit plunged 15 percent — the first decline in earnings since the aftermath of the financial crisis in 2009.
The nation’s big banks have endured a torrid year, punctuated by a damning report uncovering years of misconduct, executive departures and a mounting bill to compensate customers for wrongdoing. Add a slowing economy, shrinking margins and tougher regulation — and the outlook is bleak.
After announcing the earnings yesterday, Westpac chief executive officer Brian Hartzer said: “2019 has been a disappointing year... Financial results are down significantly in a challenging, low-growth, low interest rate environment.”
Hartzer, 52, was not paid a short-term bonus, and has forgone a maximum of A$8.1 million in incentive payments, the bank’s annual report said.
RIPPLE EFFECT
While Westpac shares were halted from trading yesterday, the ripples were felt across the banking sector.
National Australia Bank Ltd, which is to report its earnings on Thursday, fell 2.53 percent in Sydney trading yesterday, and Commonwealth Bank of Australia declined 1.52 percent.
Australia & New Zealand Banking Group Ltd dropped 0.92 percent.
While analysts had been braced for a weak result from Westpac, the outcome was worse than expected across the board.
Cash profit fell to A$6.85 billion, ending nine years of growth, return on equity, a key measure of profitability, fell 225 basis points to 10.75 percent, well below the bank’s target of about 13 to 14 percent, and the final dividend was slashed to 80 cents a share from 94 cents last year.
GAME PLAN
To shore up its balance sheet ahead of tougher capital rules, the bank plans to sell A$2 billion of shares to institutional investors at A$25.32 each, a 9.2 percent discount on Friday’s closing price.
By comparison, when Macquarie Group Ltd, Australia’s largest investment bank, raised A$1 billion in August, it sold shares at just a 2.8 percent discount.
A further A$500 million of shares are to be offered to retail investors.
Banks would continue to struggle as margins decline further, said Aaron Binsted, a portfolio manager at Lazard Asset Management in Sydney.
“There’s just a lot of headwinds there,” he said.
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