Westpac’s cash earnings fell to $6849 million, 15 per cent lower than the 2018 financial year.
Of the $1,216 million decline, $849 million was due to higher costs associated with customer remediation and the associated costs of exiting financial planning. The remaining decline was due to lower interest margins, a decline in wealth management and insurance revenue, and increased regulatory and compliance costs.
Chairman Lindsay Maxsted also blamed increased competition from “international banks, non-banks and niche players“.
In the face of the decline, Westpac’s board opted to cut the final 2019 dividend to 80 cents per share, citing the need to make decisions that “are in the best long-term interests of the company”.
Return on equity also declined 2 percentage points to 10.75 per cent – something which played into Westpac’s decision to announce a capital raise of $2.5 billion.
The capital raise will create a buffer against potential downturn and form part of the bank’s funding pool. It will also allow the bank to surpass APRA’s “unquestionably strong“ CET1 capital ratio, which will be enforced from 1 January 2020.
The capital raise will also give the bank more flexibility for potential litigation or regulatory action, which the bank expects it will face in the near future.
Westpac’s announcement has echoes of ANZ’s results last week, where the blame for the bank’s flatlined profits was pinned squarely on low interest rates and geopolitical tensions around the globe.
