The Westpac Banking Corp (ASX: WBC) share price has returned from its trading halt and crashed lower today.
The banking giant's shares fell as much as 5% in early trade to $26.46.
Why is the Westpac share price sinking lower?
Investors have been selling the bank's shares on Tuesday following the release of a soft full year result and the announcement of a $2.5 billion capital raising on Monday.
In respect to its result, Westpac reported a 16% decline in statutory net profit to $6,784 million. Its cash earnings also fell hard, and were down 15% to $6,849 million.
Westpac CEO, Brian Hartzer, explained that it had been a challenging 12 months.
He said: "Financial results are down significantly in a challenging, low-growth, low interest rate environment. Our result was impacted by customer remediation costs and the reset of our Wealth business. Excluding these notable items, cash earnings were down 4% on FY18, which was mainly due to a reduction in wealth and insurance income from the exit of our financial planning business, higher insurance claims, and the impact of regulatory changes on revenue."
This poor result and concerns over changes in capital rules and potential litigation or regulatory action, led to the bank slashing its dividend and launching a capital raising.
Dividend cut and capital raising.
Given that the market was already expecting a soft result, today's share price weakness seems to be largely down to the dividend cut and capital raise.
Westpac cut its final dividend by 15% to 80 cents per share fully franked. Mr Hartzer explained: "The decision to reduce our second half dividend to 80 cents per share was not easy, as we know many of our shareholders rely on our dividends for income. However, we felt it was necessary to bring the dividend payout ratio to a more sustainable medium-term range given the capital raising and lower return on equity."
In respect to its capital raising. Westpac is aiming to raise a total of $2.5 billion via an institutional placement and share purchase plan. The former has now been successfully completed, raising $2 billion at $25.32 per share. This was a discount of 9.2% to its last close price.
Broker reaction.
A number of broker notes have been released today in response to the news. Both Morgans and Credit Suisse have held firm with their buy ratings. Though, they have trimmed their price targets to $31.50 and $28.90.
Elsewhere, analysts at Macquarie Group Ltd (ASX: MQG) and Goldman Sachs have retained their neutral ratings. They have also reduced their price targets. They are now at $26.50 and $28.42, respectively.
