Westpac warns of more defaultsBy Andrew Carswell May 02, 2008...

Westpac warns of more defaults
By Andrew Carswell May 02, 2008 09:15am

Westpac boss says mortgages in arrears are rising
The bank posted a $2bn half-year profit
In-depth: The latest interest rate news and features

THE number of cash-strapped home owners defaulting on their mortgages is yet to peak, Westpac boss Gail Kelly claimed.

The bank CEO told analysts yesterday even if interest rates remained on hold in the long term, delinquency rates would continue to climb, particularly in hard-hit western Sydney.

The stark assessment was delivered during Ms Kelly's debut profit result at the bank, where she heaped praise on the bank's robust performance in atough financial environment.

The former St George Bank boss announced a $2.202 billion half-year profit, largely helped by a 10 per cent increase in cash earnings.

With no surprises in the financial data, which was widely tipped, the spotlight focused on the grim mortgage stress picture Mrs Kelly painted.

"We have seen an increasing trend in delinquencies in the 90-days arrears for mortgages,'' Ms Kelly said.

"I think that there will be some more trending upwards with delinquencies in home lending. We've only just had a significant level of interest rate rises and I think there is a lag affect.

"I'm not suggesting a boom and gloom scenario but it will trend up.''

It was a message that came in absolute contrast to the bank's underlying performance.

Mrs Kelly said Westpac was continuing to weather the storms whipped up by the global financial crisis and was in a solid position to meet the continuing credit challenges.

The first-half net profit of $2.202 billion was an increase of 34.2 per cent.

However, the profit figure included the proceeds from the sale of Westpac's stake in fund manager BT Investment Management and its take in the float of Visa. Cash profit without those one-off items totalled $1.839 billion.

Colin Whitehead of stockmarket analysts Fat Prophets said the result was "OK'' but advised against investors buying into the banking sector.

"The big banks look relatively cheap on a valuation basis right now and are offering attractive-looking yields, but you have to question whether earnings are sustainable now the era of cheap credit is over,'' he said.

"The banks are in a cyclical downturn and there are many better places for your cash, such as resources which are in a long-term uptrend.''

Mr Whitehead said existing investors should hold the stock because the best time for selling had passed.

Deutsche Bank financials analyst Ross Brown said the result was relatively neutral, as indicated by the sharemarket response of a meagre 6c rise to $24.55.

"Westpac is trading at the higher end of the valuation range of the big four, but to date they have had a relatively clean sheet,'' he said.



Still gloomy...