Blues in the Banking Sector: Westpac and NAB under spotlight

  • Nov 21, 2019 AEDT
  • Team Kalkine
Blues in the Banking Sector: Westpac and NAB under spotlight
Introduction

There are several banks in Australia, but they are majorly overshadowed by the 4 major banks namely:

  • Westpac Banking Corporation
  • Commonwealth Bank of Australia
  • Australia and New Zealand Banking Group
  • National Australia Bank Limited

Banking sector in Australia has improved dramatically but it is still in a state of instability. Uncertainty around scale and breadth of strategic disruption will entirely change the scenario of how the banks appear at present time. Australian Banks may have time and again avoided financial crisis, but they may not have been able to avoid the financial stress.

Let us have a look on how some of them are performing!

Westpac Banking Corporation (ASX: WBC)

Westpac Banking Corporation (ASX: WBC) provides financial services comprising of lending, deposit taking, payments services, leasing finance, general finance, interest rate risk management and so forth.

Civil proceedings by AUSTRAC:

The company has recently on 20 November 2019 obtained a statement of claim by AUSTRAC, beginning civil proceedings associated with claimed contraventions of WBC’s obligations. This was acknowledged by Westpac and stated that it has executed an array of measures in its procedures consisting of enhanced automatic detection systems and taking AUSTRAC’s concerns seriously.

Westpac VIEWs over securities in NAB and Share Purchase Plan:

Westpac Banking Corporation notified the market of a final dividend of $0.8300 per security in respect of National Australia Bank Limited, which is to be paid on or around 12 December 2019. Westpac is targeting to raise approximately $500 million under the SPP, where shareholders have the opportunity to apply for up to $30,000 of WBC’s fully paid ordinary shares without incurring any brokerage or transaction costs.

Westpac completes $2 billion Institutional Placement:

Westpac Banking Corporation launched a capital raising, which consisted of a fully underwritten $2 billion institutional share placement. The company will issue approximately 79 million new fully paid ordinary shares at a price of $25.32 per share.

Financial Highlights

  • During the year, net profit of the company declined by 16% on prior corresponding period and stood at $6,784 million. This was mainly due to decline in net fee income by 32%, fall in net wealth management and insurance income by 50%, decrease in trading income by 2%, rising operating expenses and impairment charges. This, however, was offset by an increase in interest income, by 2%, rise in other income by 79%.
  • Since 30 September 2019, the company has announced a fully franked final ordinary dividend of 80 cents per share, totalling approximately $2,791 million as compared to dividend of 94 cents per share for a total of $3,227 million.

Key Priorities and Outlook: The company expects a modest lending growth in the coming year due to low system growth and its decision to remain disciplined on margins and low mortgage growth. WBC is focused being one of the great service companies, with three strategic priorities:

  • Customer franchise: It will continue to increase its customer base with increasing customer relations. It seeks to do this via superior service, as measured by NPS, and by expanding the share of customers.
  • Digital transformation: The company is using technology to improve efficiency and reduce the cost to income ratio to below 40%. This will include completing the modernisation of the Group’s technology platforms and migrating more activity to digital that will assist in the continued restructuring of the Group’s distribution network and create new experiences for customers.
  • Performance discipline: It will prioritise to manage capital funding and liquidity; managing returns effectively seeking to achieve a superior ROE to the peer average and remaining disciplined and targeted on asset growth.

Stock Performance: On 21 November 2019, WBC was trading at $24.980, dipping by 2.688% (at AEST 12:53 PM). The stock went down by 7.50% in the past 6 months and declined by 11.15% in the past 30 days. In terms of valuation, it is trading at a P/E multiple of 13.060x and is earning an annual dividend yield of 6.78%.

National Australia Bank Limited (ASX: NAB)

Australia based National Australia Bank Limited (ASX: NAB) provides services related to banking, credit and access card facilities, housing and general finance, global and investment banking, funds management and custodian.

NAB’s agreement to settle class action:

On 20 November 2019, the company notified that it has consented to settle class action brought counter to it by Slater & Gordon related to Consumer Credit Insurance, which involves a settlement payment of $49.5 million.

Issue of $1,400,000,000 Subordinated Notes:

On 18 November 2019, NAB announced that it was to issue floating rate medium term notes of $1,175,000,000 due on November 2031 and $225,000,000 subordinated fixed rate medium term notes due in November 2031.

Dividend and Interest payment:

As per the annual report, published on 15 November 2019, National Australia Bank Limited declared a dividend of 83 cents per share, which is to be paid by December 12, 2019. It also declared to pay interest of 2.144400 % on HYBRID 3-BBSW+1.25% PERP SUB EXCH NON-CUM STAP on February 17, 2020.

Financial Highlights: 2019 was a challenging year for the organisation. During the year, cash return on equity was 9.9%, decreased by 180 bps on prior year. Net Profit after Tax also declined to $4,801 million in FY19 from $5,557 million in FY18. This was mainly due to decrease in operating income and increase in credit impairment charge. During the time span from FY15 to FY19, the company has witnessed a CAGR of 2.13% in Net Interest Income.

Financial Performance (Source: Company’s Report)

Stock Performance: On 21 November 2019, NAB was trading at $26.140, dipping by 1.022% (at AEST 12:51 PM). The stock of the company generated a return of 11.76% on YTD basis but gave a negative return of 8.49% in the past 30 days. In terms of valuation, it is trading at a P/E multiple of 15.400x and is earning an annual dividend yield of 6.29%.


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