Westpac profit plunges 70 per cent as cost of coronavirus is exposed

The major bank joined rival ANZ in cutting its payout to shareholders as the deadly virus slashed its cash profit by nearly $1 billion.

Westpac’s cash profit plunged 70 per cent in what was described as the “most difficult” result in many years as the cost of the coronavirus pandemic weighed heavily on the major bank.

Its interim cash profit lost nearly $1 billion for the six months to March 31 and it joined ANZ in deferring any dividend paid to shareholders as it forecasts house prices to fall throughout 2020.

NAB slashed its offering to those holding its stocks last week when it announced it would pay a dividend of just 30 cents per share following guidance from prudential regulator APRA that banks and insurers should seriously consider doing so until the economic outlook is clearer.

RELATED: ANZ cash profit tumbles 62 per cent

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For comparison, Westpac paid 94 cents per share to holders in the first half of last year.

"This is the most difficult result Westpac has seen in many years,” chief executive Peter King announced to the ASX this morning.

“It is significantly impacted by higher impairment charges due to COVID-19, as well as notable items including the AUSTRAC provision.”

Mr King said the once-in-a-lifetime health crisis had become an economic crisis with Westpac expecting Australia to suffer a sharp contraction in 2020 before a “solid rebound” in the December quarter.

It has forecast unemployment to peak at 9 per cent in June and ease to 7 per cent by the end of the year but house prices will fall through to Christmas, reversing recent recoveries particularly in Melbourne and Sydney.

“While the rest of the world is also facing significant economic disruption, Australia’s exports will likely benefit from the recovery in the Chinese economy,” the Westpac chief said.

“Unfortunately, ongoing international travel restrictions will continue to flatten inbound tourism and impact foreign student arrivals.”

Mr King said the major lender will play a vital role in supporting the country and helping to get businesses ticking along once COVID-19 eases.

“We are continuing to keep credit flowing in the economy and we have tailored relief packages to help consumers and business,” he said.

“It is vital that when we get to the recovery phase businesses are ready to re-open and support as many Australians back into work as possible.”

The coronavirus pandemic has decimated the financial sector with Westpac shares plummeting nearly 37 per cent so far this year.

Former interim chief executive Peter King took over the role on a permanent basis last month. Picture: Nikki Short

On Thursday, ANZ Chairman David Gonski said the decision to hold off on paying a dividend was not a reflection of the bank’s financial health.

He said ANZ had not received any concerns from APRA regarding capital levels.

“The board agrees with the regulator’s guidance that deferring a decision on the 2020 interim dividend is prudent given the present economic uncertainty and that making a decision at this time would not have been appropriate,” Mr Gonski said.

“This was a very difficult decision and the Board considered all options available as we understand the impact this will have on those shareholders who rely on dividends.”

ANZ said it would “consider all factors” over the coming months and will continue to assess the evolving situation, including the severity of community lockdowns, before determining a final position on the interim dividend.

PETER KING TAKES OVER

Last month, Westpac handed the leadership to the man who steered the major lender through the early stages of its child exploitation scandal, announcing the acting chief executive Mr King would take over the role on a permanent basis.

The veteran of the bank was due to retire last year but was thrust into the main seat after former boss Brian Hartzer resigned in the wake of the AUSTRAC allegations of 23 million breaches of money laundering and counter-terrorism finance laws.

Westpac chairman John McFarlane said Mr King’s 25 years’ experience with the country’s oldest bank will be pivotal in times of destructive uncertainty as the coronavirus pandemic wreaks havoc on both international and local economies.

“I believe we need a chief executive in place now, not later, and with full, rather than acting authority,” he said in a statement this morning.

The new chief executive and executive team had their hefty bonuses cancelled last year due to the child exploitation scandal.

But Mr King, who was the major lender’s former chief financial officer and chief risk officer, will pocket a base salary of $2.4 million and be eligible for as much as $9.2 million including entitlements, according to the Australian Financial Review. Though the figure is unlikely to reach this high given the expected reduction to revenue as a result of the virus.

THE CRISIS

Westpac’s crisis began when financial watchdog AUSTRAC revealed last year it was facing charges after allegedly failing to investigate customers who made transactions possibly linked to child exploitation in the Philippines and South-East Asia.

It’s believed some of those payments may have gone towards “live-streamed child abuse”.

The lender is also accused of breaching money laundering and counter-terrorism finance laws, with Westpac publicly accused of 23 million breaches in total.

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