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Westpac profit drops

Wednesday 5th May 2010

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Westpac Banking Corp. has reported a 38% drop in first-half earnings from its New Zealand, as the long tail of recession and a weak housing market resulted in its local unit lagging behind the parent.

Cash earnings tumbled to $125 million in the six months ended March 31, from $202 million a year earlier, the Sydney-based bank said in a statement today. By contrast, net income at the parent jumped 32% to A$2.88 billion, reflecting a 45% drop in bad debt charges and improved markets. Revenue at the parent rose 4% to $8.6 billion.

New Zealand’s economy has lagged behind its trans-Tasman counterpart, which has benefited from Chinese demand for its raw materials and federal government stimulus to the housing and infrastructure sectors. Westpac’s New Zealand earnings showed an improvement from the second half of last year, when cash earnings dwindled to just $34 million as impairment charges peaked.

“The prolonged recession in New Zealand and the weakness of the property market have impacted earnings in this division,” said chief executive Gail Kelly. “While the Australian and New Zealand economies have shown marked signs of improvement, Westpac remains cautious,” she said.

“We expect the effects of the global financial crisis to be with us for many years. It is important to retain prudent balance sheet settings to deal with the challenges ahead.”Westpac will pay a first-half dividend of 65 Australian cents, up 16% from a year earlier, though just short of the consensus forecast 66 cents in a Reuters survey.

Bad debt charges declined more than expected to A$879 million.

Its earnings growth mirrors rivals including Australia & New Zealand Banking Group, which last week posted a 36% jump in profit as lenders bask in the benefits of a domestic economy that skirted recession and is expanding at a sufficient pace that the Reserve Bank of Australia yesterday raised its benchmark interest rate a quarter point to 4.5%, the sixth increase since October.

Westpac’s New Zealand shares were unchanged at $35 and have gained 21% in the past three months.

Westpac’s net interest margin fell 11 basis points to 2.28%. Tier 1 capital lifted by 53 basis points to 8.64%.

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