dissapointing, page-11

Using WBC's own pro-forma cash earnings adjusted for SGB pre-acquisition date cash earnings (which is the way to go) cash EPS is 82.4cents for the six months, down 16% and representing a P/E ratio of 11.8. I had estimated cash EPS down 10%, so outcome is below my estimate. I had also expected dividends at 60c, so 56c is also below my estimate.

We are seeing the big corporate defaults (ABC, Centro, BNB, Commander) in these numbers, but IMHO, plenty of commercial property and consumer (credit cards etc) to follow as economy deteriorates. Under IFRS accounting policy that the banks use, credit charges are only for incurred loss, so no forward recognition of expected credit losses is allowed.

Dividend payout ratio of 68% looks sustainable. Risk assets of $280b. Growing at say 10% a year, 5% credit growth, 5% downgrading of portfolio is $28b growth. Using Westpac's fundamental tier 1 ratio of 6.7%, they need $1.9b of capital to support this growth. On full year cash earnings estimate of $4.6b, this is 41% of cash earnings, which is doable, but only with the DRP increasing shares on issuance and diluting EPS.

Overall, slightly below expectations and I expect a red day for WBC - personally am staying away from the banks until I see more value in the share prices.