Westpac’s share price was flogged on Tuesday after the bank flagged a string of one-off cost hits that will wipe A$1.3 billion from the group’s full year after tax profit.
In a filing to the ASX, Westpac revealed it would write down the goodwill, capitalised software and other assets of Westpac Institutional Bank by $965 million following an end-of-year impairment test.
“In our annual impairment test, the valuation of our WIB division did not support the carrying value of its assets (mostly intangibles),” the bank told shareholders in the lodgement.
“This was partly due to reducing risk in the division through the exit of energy trading, consolidating our Asian operations and reducing our correspondent banking relationships which have all impacted earnings.
“At the same time, medium term expectations of a prolonged low interest rate environment, subdued financial markets income and elevated compliance expenses have impacted WIB’s earnings outlook.”
The bank also revealed it would report around $267 million in “separation and transactions costs” in relation to the sale of its life insurance business to TAL announced in August.
Westpac is conducting a review of premium increases on life policies it sold since 2010 that could result in a potentially large customer remediation program.
“This is a complex review where the outcomes are currently uncertain,” the bank stated in the filing.
“As such, customer remediation may be required in the future.
“There is also a risk that the outcomes of the review could impact the financial and/or capital position of Westpac Life Insurance Services.”
These and other special expense items will be partly offset by a $55 million gain from the sale of the general insurance arm and a reversal of previous write-downs on the Papua New Guinea and Fiji banking operations after their planned sale was blocked by the PNG competition regulator.
The disclosures elicited derisory reactions from analysts who have been become accustomed in recent years to the bank’s habit of delivering news of big cost blow outs to investors on the cusp of profit announcements.
“Westpac has not printed a clean set of results since 2013 — gains/losses, write-downs/write-offs, conduct remediation, fines, revaluations and restructuring provisions among other things that amount to net about $6.4 billion in destroyed value,” said Evans & Partners analyst, Matthew Wilson.
“And it's not over yet.”
Wilson observed that Westpac had made fair progress divesting non-core businesses, but said he was concerned the bank was now “shrinking to sameness”.
“A once balanced and distinctive franchise is now gone,” he said.
Wilson has lowered his full year net earnings forecast to $5.07 billion from $6.15 billion.
Disclosure of the cost blowouts triggered a sharp fall in Westpac’s share price, which underperformed all other listed banking stocks on Tuesday.
Westpac’s scrip closed down 43 cents or 1.65 per cent to $25.63 on higher than average volume of 7.8 million shares.
Chief executive Peter King is scheduled to unveil the annual financial results on 1 November.