By Jenny Ruth
Friday 16th October 2009
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The odds are stacked against Westpac Bank succeeding in an appeal against last week's $918 million ($A753 million) judgement against it by the New Zealand High Court, one of the country's largest ever tax avoidance cases, says Aegis Equities analyst David Ellis.
That's given the extensive deliberations and the unfavourable ruling against National Australia Bank-owned Bank of New Zealand on a similar matter.
Ellis estimates the ruling will cost Westpac about 25 Australian cents per share.
"Reflecting the fact Westpac has already made a provision in the ‘tens of millions' for the potential increase in tax costs, we have increased our forecast for second-half 2009 tax costs by $A730 million." That doesn't include any punitive penalty interest which the Commissioner for Inland Revenue may seek to recover, Ellis says.
On the positive side, he is expecting Westpac's profit margins to expand in the wake of the Reserve Bank of Australia's 25 basis point rate hike last week "as funding costs via deposits are unlikely to rise as much as lending rates."
Ass a result, he has raising his earnings per share (EPS) forecast for 2010 by 2% and for 2011 by 1.8%. "In our view, Westpac is well positioned to take advantage of market conditions and we expect strong earnings recovery in 2010 following softness in 2009."
BROKER CALL: Aegis Equities rate Westpac as add.
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