Westpac (ASX:WBC) share price edges lower following $1.3bn hit to earnings

Write-down of assets, additional provisions and other costs will weigh on Westpac’s second half earnings.

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The Westpac Banking Corp (ASX: WBC) share price is edging lower on Tuesday after the company announced a number of notable items affecting its second half performance.

At the time of writing, the Westpac share price is 0.46% lower to $25.94.

Westpac share price falls on hit to earnings

Westpac announced that its reported net profit and cash earnings for H221 will take a $1.3 billion hit due to notable items.

The notable items include:

  • A $965 million write down of assets (goodwill, capitalised software and certain other assets) in Westpac Institutional Bank (WIB) following its annual impairment test;
  • Additional provisions for customer refunds, payments, associated costs and litigation provisions of $172 million;
  • Previously announced separation and transaction costs along with a deferred tax asset write-off related to the agreed sale of Westpac Life Insurance Services Limited of $267 million; and
  • Other costs associated with the divestment of the Group’s Specialist Businesses of $24 million

Westpac notes that these charges were partially offset by:

  • $55 million from the sale of Westpac General Insurance; and
  • A $54 million reversal of previous write-downs associated with Westpac Pacific as the business is no longer held for sale

Overall, Westpac estimates that the items will reduce its CET1 capital ratio by around 15 basis points.

Westpac’s last reported CET1 capital ratio stood at 12% at June, down from 12.3% at March. Nonetheless, its capital remains well above APRA’s unquestionably strong benchmark of 10.5%.

What’s next for Westpac?

Westpac is scheduled to announce its FY21 full-year results on Monday, 1 November.

Investors might want to note the recent pullback in new borrower-accepted finance commitments for housing, personal and business loans for August.

The Australian Bureau of Statistics (ABS) reported a 4.3% month-on-month decline for housing loans, the largest decline since the initial pandemic outbreak.

Furthermore, regulatory bodies including the Australian Prudential Regulation Authority (APRA) and the Australian Banking Association (ABA) have hit the broader banking sector with a sweep of new regulations, aimed at tightening lending rules and strengthen protection for customers.

Despite the potential headwinds, the Westpac share price is the best performing big four bank so far in 2021, up 32% year-to-date.

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