Westpac First Australian Bank to Scrap Dividend as Covid Bites

(Bloomberg) -- Westpac Banking Corp. has scrapped its first-half dividend, citing the desire to maintain a strong balance sheet in an uncertain operating environment.

The lender had previously deferred any decision on a payout during the height of the first coronavirus outbreak. It will next consider dividends as part of finalizing its full-year results.

Westpac is the first of the nation’s big-four banks to cancel its dividend as the pandemic wreaks havoc on balance sheets. Commonwealth Bank of Australia and National Australia Bank Ltd. both cut their payouts. Australia & New Zealand Banking Group Ltd., may give an update on its decision to defer payouts when it releases quarterly results Wednesday. The moves are a blow to legions of retail shareholders, particularly retirees, who rely on the steady stream of payments.

Westpac reported unaudited cash earnings of A$1.32 billion ($952 million) in the three months ended June 30, in a statement Tuesday. The bank increased its bad-loan provision by A$574 million and flagged it may write down the value of its life insurance unit and software this quarter.

The shares fell as much as 4% in early Sydney trading and were down 3.4% to A$16.99 at 10:27 a.m. local time. The stock has declined 30% this year.

For more detail from the earnings, click here

“We have maintained our strong balance sheet and increased provisions for bad debts to support our prudent approach to managing impairments,” Chief Executive Officer Peter King said in the statement. “While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains, particularly given the unpredictability of Covid-19 outbreaks and their local impacts.”

In signs of the toll the coronavirus-induced recession is taking on customers, Westpac said 78,000 mortgages, with a combined balance of A$30.4 billion, were on payment holidays as of July 31. The proportion of borrowers more than 90 days behind on payments rose 55 basis points to 1.49%.

The bank said there were emerging signs of stress among customers as it increased allowances for losses in its mortgage book.

As well as dealing with the economic fallout from Covid, Westpac is also embroiled in a host of legal issues, including allegations of a massive breach of anti-money laundering rules. It has set aside A$900 million for a potential settlement -- which would be an Australian record -- and said further issues may come to light.

“As Westpac strengthens its financial crime program, further issues have and may continue to be identified,” it said. “Given the volume of transactions Westpac processes, any issue could result in a large number of breaches of financial crime obligations and may lead to further regulatory action and/or monetary penalties.”

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