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Westpac (ASX:WBC) share price on watch after cash earnings update

Credit: Kiwiteen123

The Westpac Banking Corp (ASX: WBC) share price will be one to watch this morning following the release of an update on its upcoming second half results.

What did Westpac announce?

Westpac has announced that its cash earnings in the second half will be reduced by $1,220 million after tax due to a number of notable items.

According to the release, 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. This is expected to reduce the banking giant’s CET1 capital ratio by 24 basis points.

What are the notable items?

The notable items include a $568 million after tax write-down of goodwill and intangibles associated with Westpac Life Insurance Services and Auto Finance businesses, along with a write-down of capitalised software.

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.

Also included is an increase in provisions for customer refunds, repayments, associated costs, and litigation provisions of $182 million after tax and asset sales and revaluations which reduces cash earnings by $55 million after tax.

The latter includes the revaluation of Life insurance liabilities and a loss on the agreed sale of its vendor finance business. These items, which totalled $267 million after tax, were partly offset by a benefit after tax of $212 million from a revaluation of its holding in Zip Co Limited (ASX: Z1P).

Reporting changes.

In addition to the above, Westpac has advised of changes to its divisional structure.

This includes the creation of the Specialist Businesses division, which will see businesses from the Consumer, Business and WIB divisions moved and the reallocation of certain centrally managed costs across divisions.

It will also see the movement of certain SME and Business products from the Business division to the Consumer division. It feels this better reflects its new Lines of Business operating structure.

The changes will have no impact on its cash earnings, reported net profit, or balance sheet in prior periods. However, they do impact divisional cash earnings (and individual line items) and balance sheet items in prior periods.

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James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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