Westpac shares went into a two-day trading halt before the ASX opened on Monday morning to allow it to make a surprise capital raising of around $2.5 billion to big shareholders.
The news came as the bank, the country’s second-largest, slashed final dividend by 15% after reporting a sharp fall in second half and full-year earnings.
There had been isolated media speculation about a possible raising in morning papers. Most of the $2.5 billion will come from big shareholders in an issue to be conducted on Monday and completed tomorrow. A raising to small retail shareholders will follow shortly.
Analysts say the capital raising is needed because Westpac’s tier-one holdings (the most important) have fallen under 10.5% (APRA’s minimum) and there is no way they can be rebuilt by the end of 2020 by retained earnings (which would mean a slashing of the dividend to shareholders over the next year or so).
At the same time, Westpac revealed a lower final dividend (but full franked, unlike the ANZ) of 84 cents a share and a lower profit and lower revenues for the year to September 30.
Net profit fell 16% for the year to $6.784 billion from $8.095 billion for all of 2017-18. The lower result came off the back of a 6% dip in revenues to $20.65 billion.
Cash earnings fell 15% to $6.849 billion.
The final dividend of 80 cents a share was down 15% from the 94 cents paid a year ago. An interim for 2018-19 of 94 million was paid earlier this year. Unlike the ANZ which chopped its franking to 70% Westpac is maintaining a 100% fully franked payout.
The bank’s return on equity plunged to 10.65% from 13.05%.
Westpac said the “Full Year 2019 included significant increases in provisions for estimated customer refunds, payments, associated costs, and litigation, along with costs associated with restructuring of the wealth business, which together reduced net profit after tax by $1,130 million.”
Westpac CEO Brian Hartzer said in a statement that “2019 has been a disappointing year. Financial results are down significantly in a challenging, low-growth, low-interest-rate environment.
“Our result was impacted by customer remediation costs and the reset of our Wealth business. Excluding these notable items, cash earnings were down 4% on FY18, which was mainly due to a reduction in wealth and insurance income from the exit of our financial planning business, higher insurance claims, and the impact of regulatory changes on revenue,” he said.