Horror Year for Australia’s Banks Capped by Westpac’s Worst Earnings Since 2009

(Bloomberg) -- Westpac Banking Corp. capped a horror year for Australia’s banks with its worst earnings since the global financial crisis.

The country’s second-largest bank will tap shareholders for A$2.5 billion ($1.7 billion) in new capital and slashed its dividend as full-year cash profit plunged 15% -- the first decline in earnings since the aftermath of the financial crisis in 2009.

The nation’s big banks have endured a torrid year, punctuated by a damning report into years of misconduct, executive departures, and a mounting bill to compensate customers for wrongdoing. Add in a slowing economy, shrinking margins and tougher regulation -- and the outlook is bleak.

Read more: Dividend Bonanza Starts to Crack at Australia’s Banks

“2019 has been a disappointing year,” Westpac Chief Executive Officer Brian Hartzer said after announcing the earnings Monday. “Financial results are down significantly in a challenging, low-growth, low interest rate environment.”

Hartzer, 52, wasn’t paid a short-term bonus, and has forgone a maximum of A$8.1 million in incentive payments, according to the bank’s annual report.

While Westpac shares were halted from trading Monday, the ripples were felt across the banking sector. National Australia Bank Ltd., which reports earnings Thursday, fell as much as 2.9% in early Sydney trading, and Commonwealth Bank of Australia declined 1.4%. Australia & New Zealand Banking Group Ltd. dropped 0.4%.

While analysts had been braced for a weak result from Westpac, the outcome was worse than expected across the board:

• Cash profit fell to A$6.85 billion, ending nine years of growth
• Return on equity, a key measure of profitability, fell 225 basis points to 10.75%, well below the bank’s target of about 13%-14%
• The final dividend was slashed to 80 cents a share from 94 cents last year

To shore up its balance sheet ahead of tougher capital rules, the bank will sell A$2 billion of shares to institutional investors at A$25.32 each, a 9.2% discount to Friday’s closing price. By comparison, when Macquarie Group Ltd., Australia’s largest investment bank, raised A$1 billion in August, it sold shares at just a 2.8% discount.

A further A$500 million of shares will be offered to retail investors.

For more detail on Westpac’s capital raising, click here

Banks will continue to struggle as margins decline further, said Aaron Binsted, a portfolio manager at Lazard Asset Management in Sydney.

“There’s just a lot of headwinds there,” he said.

--With assistance from Jackie Edwards.

To contact the reporter on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Peter Vercoe, Edward Johnson

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