Westpac tips a $1.3 billion hit to its 2nd half profit

Westpac (ASX:WBC) flagged some slightly sobering news for investors this morning with a $1.3 billion profit downgrade.

The company revealed a cut to its forecast profit for the second half of FY21 (which for Westpac is 1 April to 30 September 2021).

The big banks have been well known for their profits and consequential dividends for investors and Westpac was no exemption – at least prior to COVID-19.

Westpac paid out 80 cents a share for the 12 months to 30 September 2019, before paying 31 cents a share in the 12 months to 30 September 2020.

It deferred the dividend for the six months to 31 March 2020 as COVID-19 first hit Australia before the lower payout in the second half of FY20.

For the six months to 31 March 2021 it paid 58 cents a share driven by a $3.44 billion profit thanks to the growth in consumer lending and the restructuring plan.

But for the six months thereafter it is tipping its net profit and cash earnings to be $1.3 billion lower after tax.

Why did Westpac downgrade its profit?

Most prominently Westpac blamed a $965 million write down of assets following an annual impairment test.

Also contributing to the result were provisions for customer refunds and litigation provisions of $172 million, a deferred tax asset write-off related to the sale of its Life Insurance business of $267 million.

The bank also booked a $55m gain on the sale of its general insurance business, and a $54m reversal of previous write-downs associated with Westpac’s Pacific businesses.

The latter adjustment occurred thanks to the Pacific businesses no longer being for sale after PNG regulators blocked the proposed sale to Kina Securities (ASX:KSL).

Although these will have no net impact on regulatory capital, being capital deductions, these will reduce it’s CET1 capital ratio by 15 basis points, Westpac said.

The company promised to release results for FY21 in 3 weeks time, on November 1.

Westpac shares took a slight hit this morning.

While Westpac is up nearly 40% in the last 12 months, its shares have the lowest gain of the Big 4 banks and are the only one of the Big 4 banks’ shares to be down in the past 5 years – standing 14% lower than in October 2016.