Big four lender Westpac announces another $1.3bn in writedowns and customer refunds

Alex DruceNCA NewsWire
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Camera IconNot Supplied Credit: News Corp Australia

Big four lender Westpac has announced another eye-watering financial blow, with the bank set to take a $1.3bn hit in its upcoming financial results.

The $95bn company – which owns the St. George, Bank of Melbourne, and BankSA brands – said its net profit and cash earnings would be significantly reduced in the second half of 2021 thanks to another run of impairments and customer refunds.

Tuesday’s update eclipses the $1.2bn hit the bank announced almost the same time last year.

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Camera IconThe $95bn Westpac – which owns the St. George, Bank of Melbourne, and BankSA brands – said its net profit and cash earnings would be significantly reduced in the second half of 2021 NCA NewsWire / John Gass Credit: News Corp Australia

Westpac – the nation’s second largest bank behind the Commonwealth Bank – says it expects a $965m writedown of software assets and goodwill in its institutional bank following its annual impairment test.

Another $172m will be lopped off the balance sheet for additional provisions for customer refunds, payments, associated costs and litigation provisions.

It is also factoring in $267m for previously announced separation and transaction costs and deferred tax asset write-off related to the agreed sale of Westpac Life Insurance Services Limited.

Other costs associated with the divestment of the group’s specialist businesses will amount to $24m.

In aggregate terms, the impairments are estimated to reduce the group’s common equity tier 1 capital ratio – a measurement of how much money it has – by around 15 basis points.

The company was down 0.4 per cent on the ASX in early trade on Tuesday at $25.95, having still gained more than 40 per cent in value over the past 12 months.

Tuesday’s costs were mitigated somewhat by a $109m benefit the other way, including a $55m gain on the sale of its general insurance division and a reversal of previous writedowns associated with its Western Pacific Business no longer held for sale.

CEO Peter King -Power 100.
Camera IconWestpac chief executive Peter King Jonathan Ng Credit: News Corp Australia

A year ago Westpac announced a $1.2bn hit to earnings due to writedowns across its insurance businesses and an expanding customer remediation bill.

Last year it also agreed to pay the largest fine in Australian corporate history — a $1.3bn civil penalty for more than 23 million breaches of anti-money laundering laws.

However, the bank’s first-half profit in May improved by more than three-fold to $3.5bn thanks to an improving economy and a reduction in bad debts. This helped Westpac pay a better-thank-expected interim dividend of 58 cents per share.

The bank is scheduled to announce its full-year results on Monday November 1.

Originally published as Big four lender Westpac announces another $1.3bn in writedowns and customer refunds

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