WBC 0.88% $24.71 westpac banking corporation

$2.1b! Now Westpac aims to consolidate

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    $2.1b! Now Westpac aims to consolidate
    November 1 2002
    By Sharon Kemp

    Westpac Banking Corp yesterday reported a 15 per cent profit rise to a record $2.19 billion, fuelled by several one-off items.

    Declaring 2002 the bank's year of transition, brought about by buying $1.5 billion worth of wealth-management businesses and selling its AGC consumer finance arm for $2.5 billion, Westpac signalled it expected further solid growth this year.

    After stripping out significant items, the result was a patchy 9 per cent rise in net earnings to $2.06 billion.

    More importantly for nervous investors who have sold Westpac's share price down 12 per cent in the year to September 30, the bank said it could replicate that growth even while it integrated the acquisitions.

    "Allowing for near-term earnings dilution from our strategic repositioning, as indicated at the time of each announcement, we expect to deliver underlying cash earnings per share growth in the 7 to 9 per cent range," chief executive David Morgan said.

    That prediction alone seemed to satisfy investors, who drove Westpac shares almost 4 per cent higher yesterday. The stock closed 53 cents stronger at $14.20 on strong volumes. The final dividend will be 36 cents a share, fully franked, payable on December 20.

    Analysts said Westpac delivered what was expected, but noted the quality of the result was "just okay" and that the complexity of accounting for multiple acquisitions and a major sale made the numbers "bloody hard to understand immediately".

    Westpac paid $38 million less in tax, which helped earnings significantly, as did a lower second half bad debt charge of $190 million (compared with $271 million in the first half).

    However, the exclusion of six months of revenue from the AGC division meant interest revenue rose only marginally, by 2 per cent.

    Unexpected was a $93 million fall in earnings from Westpac's institutional bank after it wrote off two large corporate debts. Westpac announced previously it was owed $25 million by WorldCom Inc and $51 million by Enron Corp.

    Dr Morgan said institutional bank leadership had changed during 2002, who would be expected to claw back some of last year's losses.

    Westpac booked a $754 million profit from the sale of AGC and took the opportunity to "clear the decks" of other one-off items.

    The AGC proceeds were diminished by five charges, including a $60 million charge for the wealth management integration, $109 million to write down the division under a new accounting treatment, the previously flagged $149 million write-off of bond losses, $95 million to write down capitalise deferred expenditure relating to outsourcing projects, and a $160 million cost after restating superannuation obligations.

    In all, significant items contributed $181 million to the profit enabling the bank to use the AGC profit to move "to a set of international accounting standards that fundamentally reduces the risk and volatility and improves transparency", Dr Morgan said.

    Accounting for significant items, Westpac's earnings rose 15 per cent to $2.19 billion.

    With AGC gone, the bank must replace more than $150 million of annual earnings with profits from the reposition but unintegrated wealth management division.

    Westpac must do so as funds continue to flow of the BT business it bought for $1.05 billion in August.

    The bank's own wealth management division delivered a 19 per cent lower earnings contribution of $107 million. By 2005, Westpac predicts it will deliver revenue benefits and cost savings of $102 million a year through the integration of BT.

    Westpac's Australian consumer and business lending division proved the bank's mainstay, recording a 24 per cent rise in full year profit to $1.05 billion, fuelled by a 12 per cent jump in mortgage lending.

    Despite the expected downturn in house lending, Dr Morgan said Westpac's mortgage portfolio would suffer a reduction in asset quality.

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