What is weighing down the Westpac share price today?

Posted: 12 October 2021 1:02 pm
News
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Westpac shares are up 43% over the past 12 months.

Following a stellar 12 months, shares in banking major Westpac (ASX: WBC) are the worst performing of the Big Four banks on Tuesday, with the company being among the list of top traded shares on the ASX. The stock was already down nearly 1% to $25.84 at the time of writing.

Why has the Westpac stock price been impacted?

Westpac shares have tripped in early trading after the bank announced a series of writedowns ahead of its full year results on 1 November.

Australia’s second biggest lender on Tuesday said it would take a $1.3 billion after-tax hit against its second-half profit after writedowns at its investment bank and additional provisions for customer refunds and litigation costs.

The bulk of the write offs, $967 million on an after tax basis, relate to its institutional bank where the lender will write off the division’s entire goodwill as well as the value of its capitalised software and other assets.

“The valuation of our WIB division did not support the carrying value of its assets (mostly intangibles),” Westpac said in a statement to the ASX.

“This was partly due to 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.”

Cloudy outlook

Westpac has also increased provisions for ongoing customer refund payments and litigation costs by $172 million. It flagged a potential regulatory issue related to the recently-sold life insurance business and said it is reviewing premium increases on life insurance products issued in the years 2010 to 2017.

Analysts are worried that the writedowns could slash as much as a fifth of the lender’s full year cash profit, which would ultimately have an impact on the final dividend to shareholders.

Westpac also said the writedowns would reduce its common equity tier 1 (CET 1) capital ratio by 15 basis points. It had reported a CET 1 of 12.5% at June-end.

Incidentally, Westpac is the only Big Four bank to not announce a share buyback in recent months and had been expected to bite the bullet at the time of its full year results. The current writedowns are also expected to weigh on that decision.

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