Analysts flag Westpac to suspend or cut dividend
How likely is Westpac to pay an interim dividend to shareholders?
Investment firms are weighing in on Westpac’s $1.43bn asset writedowns, with some analysts believing the bank could cut its half yearly dividend payment by more than a half.
Westpac on Tuesday warned costs associated with its looming financial crimes penalty from Austrac and a growing amount of loan losses, would be a double blow to its 2020 financial year profits.
Equity researchers have responded to the $1.43bn cost provisions, which includes a $900m anticipated payout to the financial crimes watchdog for 23 million alleged breaches of financial crime laws. A further $130m has been set aside for the bank’s response plan to the Austrac allegations.
The $900m represents the figure Westpac expects to pay for the misdeeds. Austrac is apparently pushing for a penalty of more than $1.5bn.
UBS says the cost provisions has made a stronger case for the country’s second-largest bank to suspend its half-yearly dividend, as the one-off financial dent is predicted to place its common equity tier one (CET1) ratio below the banking regulators “unquestionably strong” benchmark.
Its analysts expect Westpac’s CET1 to fall by 30 basis points to approximately 10.4 per cent, which is below the Australian Prudential Regulation Authority’s minimum requirement of 10.5 per cent.
JPMorgan estimates an interim dividend payout of 30c a share, a reduction of 63 per cent compared with 2019’s interim dividend, which paid out at 83c a share.
“We believe there is a very high likelihood that Westpac is unable to declare this dividend at its actual result - instead, it is likely to have to declare and pay the dividend belatedly, if it can agree upon a suitable stress test with APRA,” JPMorgan said.
The brokerage also noted Westpac is yet to finalise a response to the impacts coronavirus has had on the bank’s financial performance.
Bell Potter analyst TS Lim believes the lower CET1 ratio could prompt the bank to undertake a pre-emptive capital raising, which would boost its capital buffer while it attempts to ease the financial impacts of COVID-19.
Bell Potter has slightly lowered its 12-month price target from $17.60 to $17.30 a share, noting the asset writedowns and Austrac associated costs are one-off expenses to the bank.
“We have only made slight changes to our FY20 estimates and these are mainly due to Austrac related costs, asset writedowns and life insurance provision changes,” Mr Lim said.
“The bank will announce its decision on 1H20 dividends at its interim result and has flagged that this will take into account lower expected 1H20 cash earnings.”
Macquarie Research has downgraded Westpac’s 2020 financial year earnings forecast by approximately 12 per cent, while Shaw and Partners expects the bank’s profit to fall by 15 per cent following Tuesday’s cost provisions.
The writedowns includes a $260m in customer remediation costs, $70m in capitalised software and physical asset write downs. A provision of $70m will also be set aside for Westpac’s life insurance business ending its relationship with BT Super.
Westpac is scheduled to release its half-year financial results on May 4.
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