The Westpac Banking Corp (Westpac), the second-largest lender by market capitalisation in Australia, has been hit by a huge charge due to its weaker earnings outlook at its institutional banking unit and remediation charges.
The lender confirmed that it will take a one-off charge of $956 million against its second-half profit as a protractive period of low rates “subdued” financial markets, and its exit from energy trading might lead to lower earnings at the unit, Reuters reported.
Westpac's shares were 1.65% lower after the bank's AU$1.3 billion one-off charge included provisions to pay out customers seeking remediation for wrongly charged fees and the costs associated with the sale of its life insurance unit.
In a securities filing, the company indicated that it cut the value of Westpac Institutional Banking (WIB) by nearly AU$1 billion after “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 added, as reported by Reuters.
The report also showed that payouts and other costs related to settling customer lawsuits would add another AU$172 million to the one-off charges. Meanwhile, selling costs and tax adjustments associated with selling Westpac's life insurance unit would add AU$267 million to the one-off items.
Adam Dawes, an investment advisor at Shaw and Partners Ltd, commented via Reuters: “It was surprising to see they had more charges related to regulatory issues. We expected Westpac had already accounted for and fixed all those remediation costs.”
Westpac will release its annual report on November 01, with 13 analysts polled by Refinitiv before the announcement of charges expecting the company to post an AU$6.5 billion cash profit.
