Why Westpac’s (ASX:WBC) earnings may fall in 1H21

Summary

  • Westpac Ltd (ASX:WBC) says its cash earnings in the first half of 2021 might shrink due to some additional provisions.
  • The additional provisions include customer refunds, payments and other associated costs, along with an accounting loss on sale in Westpac Pacific.
  • In 1H21, the cash earnings are expected to come down by AU$282 million (after tax).

Westpac Ltd (ASX:WBC) on Monday said that its cash earnings in the first half of 2021 would be negatively impacted due to additional provisions for customer refunds, payments and other associated costs, along with an accounting loss on sale in Westpac Pacific.

Source: © Cammeraydave  | Megapixl.com

In 1H21, the cash earnings would come down by AU$282 million (after tax), Westpac said in its latest update. Even the statutory net profit would be lowered.

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Notable factors set to impact earnings

Additional provisions for customer refunds, payments, associated costs, and litigation provisions of AU$220 million.

  • Write-down of capitalised software and other intangibles of AU$115 million
  • Costs associated with ending the Group’s relationship with IOOF of AU$56 million
  • Write-down of goodwill related to Lenders Mortgage Insurance of AU$84 million,
  • Accounting loss on sale in Westpac Pacific along with transaction costs and payments associated with divestments of AU$113 million.

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Change in software capitalisation policy

Westpac also said that it had changed its software capitalisation policy, increasing the threshold before a project is capitalised to AU$20 million (previously AU$1 million). This policy has been applied from 1 October 2020 and would see the Group expend a higher portion of its investment spending from first half 2021.

 

Source: ©  Showface  | Megapixl.com

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Stock performance

On Friday, 23 April 2021, the stock of Westpac closed at AU$25.12, up 0.010 points, or 0.040 per cent, as against the previous closing on Thursday, 22 April 2021. The stock has given a return of nearly 28 per cent so far this year. Westpac competes with Commonwealth Bank of Australia (ASX:CBA), Netwealth Group Ltd (ASX:NWL), Hub24 Ltd (ASX:HUB), AUB Group Ltd  (ASX:AUB), Janus Henderson Group plc (ASX: JHG), and National Australia Bank (ASX:NAB) in the financial sector.

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