Westpac (ASX:WBC) shares slide despite $3.5b off-market buy-back – The Market Herald

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  • Shares in Westpac (WBC) took a dive today after the bank revealed big margin cuts and still-high expenses in its full-year results
  • For the 2021 financial year, Westpac reported cash earnings of $5.35 billion — just below expectations
  • Competition is likely to put further pressure on margins, but CEO Peter King reiterated his commitment to cutting Westpac’s cost base to $8 billion by 2024
  • In addition to a final dividend of 60 cents per share, Westpac also unveiled an off-market share buy-back worth up to $3.5 billion
  • Shares in Westpac were down 7.36 per cent today, closing at $23.78 each.

Shares in Westpac (WBC) took a dive today after the bank revealed big margin cuts and still-high expenses in its full-year results.

For the 2021 financial year, Westpac reported cash earnings of $5.35 billion. While that figure was just below expectations, it was more than double last year’s result thanks to the release of funds that had been set aside for pandemic-related losses and lower notable items.

However, shares in the bank sunk more than seven per cent to an eight-month low as investors were spooked by a drop in margins, particularly in the second half, as well as higher expenses that put pressure on core earnings.

“Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be,” chief executive Peter King said.

Westpac is still in the process of a costly turnaround designed to fix outdated software and convoluted procedures, which led to record fines last year for breaches of anti-money laundering laws and a smaller market share in mortgages.

“They are on a far better footing going forward, but the market has focused on the cost of rectification rather than the benefits that flow from this,” Mark Nathan, portfolio manager at Regal Funds Management told Reuters.

“I think the market expects most of the cost benefit to flow through in 2023 and 2024, rather than through the 2022 fiscal year.”

Net interest margin — a key gauge of profitability that measures the difference between what banks charge for loans and what they pay — fell 10 basis points during the second half of 2021, to 1.99 per cent. For the full 12 months, it was four basis points lower at 2.04 per cent.

Mr King said competition was likely to put further pressure on margins, but reiterated his commitment to cutting Westpac’s cost base to $8 billion by 2024. However, that figure is a long way off from the $11 billion in expenses the bank reported today, which excludes a one-off “notable” charge worth $2.3 billion.

“We expect our costs to begin reducing in the year ahead from our simplification and the completion of key programs in our Fix priority,” he said.

In addition to a final, fully-franked dividend of 60 cents per share, to be paid on December 21, Westpac has also unveiled an off-market share buy-back worth up to $3.5 billion.

“In making this decision the Board considered the improved economic outlook, higher earnings, and progress on our strategic priorities, particularly the completion of a number of divestments, which contribute to a strong capital position,” Westpac said in an announcement today.

Such a method allows Westpac to repurchase a greater number of shares in a shorter period of time, and helps the bank support equity returns by reducing the number of shares on issue.

“Following the buy-back, Westpac will continue to have a strong capital position to respond to uncertainties, and to support growth and our customers,” Westpac added.

Shares in Westpac were down 7.36 per cent today, closing at $23.78 each.





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