Westpac's first-half profit will take a $2.2 billion hit from charges for soured loans, including a $1.6 billion impairment caused by the coronavirus pandemic
Westpac chief executive Peter King has signalled the bank is highly unlikely to raise capital at next week's profit results.
Westpac chief executive Peter King has vowed the bank will absorb a $2.2 billion hit from a surge in bad loans caused by the coronavirus crisis, quelling investor fears of a potential capital raising.
While significant dividend cuts are seen as inevitable, Mr King on Tuesday reassured investors he does not intend to launch another equity raising hot on the heels of National Australia Bank's $3 billion placement this week.
Banks are bracing for a wave of bad loans caused by the economic shutdown, and Westpac on Tuesday said its half-year profits, to be released on Monday, would take a $2.2 billion hit from charges for soured loans, including a $1.6 billion impairment caused by the pandemic.
The bank flagged economic forecasts of higher unemployment, falling property prices, and weaker investment from a "once in a lifetime health and economic crisis." But Mr King said the bank's balance sheet was "well-positioned" to absorb the impact. "Having materially strengthened capital over the last decade, building significant buffers, we are well-positioned to absorb this increase and respond to future developments in the environment," he said.
Westpac's $1.6 billion COVID-19 provision is roughly twice that taken by National Australia Bank for the pandemic on Monday, when NAB also launched a $3 billion placement and $500 million share purchase plan.Shaw and Partners analyst Brett Le Mesurier said Westpac's commentary suggested there would be "no capital raising," and the bank appeared to be taking a more cautious stance on the impact of COVID-19 on defaults than NAB. "It looks like Westpac has gone a bit harder, but NAB was having fewer write-offs before this," Mr Le Mesurier said.
Westpac shares bounced after the announcement and were up 4 per cent in early trade before these gains eased back, with the stock trading 0.9 per cent higher at $14.79 in the afternoon.Atlas Funds Management chief investment officer Hugh Dive said the bounce in Westpac shares had occurred because a capital raising appeared to be off the table, also noting Westpac had taken higher provisions than NAB. Mr Dive said Westpac's provisions were “perhaps a bit higher than what people were expecting, but it’s better to be over-providing than under-providing”
Portfolio manager at Regal Funds Management, Mark Nathan, said: "The commentary suggests they are less likely to be raising, so there has been a bit of a relief rally."Mr Nathan said it would not become clear whether banks had taken sufficient provisions for COVID-19 fallout until later in the year when bank relief packages for borrowers ended, and government wage subsidies were removed.
Westpac said the $1.6 billion COVID-19 impairment charge would have a relatively small 11 basis point impact on its closely-watched common equity tier 1 (CET1) capital ratio. The bank said its CET1 capital at the end of March would be 10.8 per cent of risk-weighted assets, which is above the regulator's benchmark of "unquestionably strong."
Bank shares have been hit hard by the COVID-19 crisis as investors brace for a wave of soured loans to businesses and households, but Westpac said the pandemic was still in its early stages and the impact on customers was "highly uncertain".On top of a $1.6 billion hit linked to COVID-19, Westpac is also taking a $0.6 billion charge for provisions of individual loans that have been assessed as at risk.
https://headtopics.com/au/westpac-raising-fears-abate-as-it-vows-to-absorb-2-2b-hit-12704097
