On Monday morning all eyes will be on the Westpac Banking Corp (ASX: WBC) share price when it hands in its full year results for FY 2020.
Ahead of the release, I thought I would take a look to see what is expected from the banking giant.
What is the market expecting from Westpac in FY 2020?
First things first, the market is expecting some hefty notable items for the second half of FY 2020.
Last week the company revealed that its second half cash earnings will be reduced by $1,220 million after tax due to notable items.
These include $568 million of goodwill and intangible write-downs related to its Westpac Life Insurance Services and Auto Finance businesses, along with a write-down of capitalised software.
In addition, the company revealed $415 million from additional provisioning for AUSTRAC related matters and an additional $182 million in provisions for customer refunds, the implementation of the remediation program, and litigation costs.
Finally, a $55 million notable item comes from asset sales and revaluations. This has been driven by losses on insurance liabilities and expenses from discontinued products (totalling $267 million after tax), which were offset by gains on the revaluation of its Zip Co Ltd (ASX: Z1P) holding ($212 million).
What does this mean for its earnings and dividend?
According to a note out of Goldman Sachs, its analysts expect this to lead to cash earnings of $2,535 million for FY 2020. This represents a 63% decline on the prior corresponding.
From these earnings, the broker expects Westpac to pay a final fully franked dividend of 25 cents per share. And given that there was no interim dividend, that amount will be the same for its full year dividend and represents an 85.6% year on year reduction.
Other key metrics of note to look out for are its CET1 ratio and return on equity.
Goldman expects a 704-basis points reduction in its return on equity to 3.7% and a CET1 ratio of 11.1%. This will be up 41 basis points year on year.
Incidentally, the broker has a buy rating and $20.65 price target on Westpac's shares. This implies potential upside of 15% over the next 12 months excluding dividends.
