Westpac to raise A$3.5B in discounted rights offer, reports 3% gain in cash earnings

Wednesday 14th October 2015

Westpac Banking Corp, Australia's second largest lender, plans to raise A$3.5 billion in a discounted rights offer to meet new capital requirements and posted a 3 percent increase in full-year cash earnings driven by lending growth.

The one-for-23 offer of about 138.4 million shares at A$25.50 apiece would lift Westpac's common equity Tier-1 ratio by about 100 basis points to more than 14 percent, which the lender said would put it in the top quartile of banks globally. The shares traded at A$30.44 before being halted for the capital raising.

The entitlement offer will allow Westpac to reach its target of boosting capital by A$6 billion this year, adding to the A$2 billion from its dividend reinvestment plan and A$500 million from the partial sale of BTIM. All of Australia's big four lenders have been raising capital to meet new requirements from the Australian Prudential Regulation Authority, which requires them to hold more capital on their books to mitigate the risk of losses on home loans.

Westpac announced a 20 basis points hike in its variable home loan and residential property loan rates effective Nov. 20, reflecting changes to mortgage risk weights, which increased the amount of capital required to be held against mortgages by more than 50 percent, the bank said.

Full-year cash earnings at Westpac rose to A$7.82 billion, from A$7.6 billion a year earlier, the Sydney-based bank said in a statement. Net interest income rose 6 percent to A$14.2 billion, as loans grew and the net interest margin was unchanged at 2.08 percent. Non-interest income was unchanged at about A$6.3 billion. Net profit rose 6 percent to A$8 billion.

Operating expenses rose 5 percent to $8.6 billion, which the bank said mainly reflected spending on initiatives to boost wealth, small-to-medium enterprise and digital revenue. Impairment charges rose 16 percent to A$753 million.

Westpac New Zealand cash earnings rose 8 percent to A$851 million, or a gain of 6 percent in New Zealand dollars. Revenue rose 7 percent, driven by 7 percent growth in lending, 5 percent increase in deposits, and a four basis point rise in margins. Expenses in New Zealand rose 6 percent, which it attributed to costs to launch its Westpac One online platform and costs of a new reward credit card. Impairment charges rose by $21 million.

Westpac will pay a fully imputed final dividend of 94 Australian cents a share, up 2 cents from a year earlier.

The shares have declined about 5.3 percent in the past 12 months, underperforming the S&P/ASX 200 Index, which fell 0.8 percent in the same period.

BusinessDesk.co.nz

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