Westpac expects 2H20 earnings to be reduced by $1.22bn due to notable items
Westpac Banking Corp (ASX:WBC) today announced that its cash earnings in the second half of 2020 will be reduced by $1,220 million (after tax) arising from notable items. Statutory net profit will also be reduced by these items.
The notable items include new items of $816 million (after tax), combined with the previously announced additional $404 million provision (after tax) for AUSTRAC matters.
In sum, these notable items are estimated to reduce the Group’s CET1 capital ratio by 24 basis points, noting that some items have no impact on capital as they are already capital deductions.
The after tax impact of notable items includes a write-down of goodwill and intangibles associated with Westpac Life Insurance Services Ltd (WLIS) and Westpac’s Auto Finance business along with a write-down of capitalised software. These items total $568 million after tax.
It also includes an increase in the provision and costs associated with the AUSTRAC proceedings of $415 million after tax. This includes the previously announced $404 million in provisions associated with the court approved civil penalty and AUSTRAC’s legal costs.
Let’s recall that, earlier in October, the Federal Court of Australia approved the agreement between Westpac and the Australian Transaction Reports and Analysis Centre (AUSTRAC) which will see Westpac pay a $1.3 billion penalty for its breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
The penalty imposed is the highest civil penalty in Australian history, reflecting the seriousness of compliance failings by Westpac.
The impact on earnings in the second half of 2020 also includes an increase in provisions for customer refunds, repayments, associated costs, and litigation provisions of $182 million after tax, as well as asset sales and revaluations, the net impact of which reduces cash earnings by $55 million after tax. This includes the revaluation of Life insurance liabilities and a loss on the agreed sale of Westpac’s vendor finance business.
These items totalling $267 million after tax were partly offset by a benefit after tax of $212 million from a revaluation of the Group’s holding in Zip Co Limited.