Westpac’s Share Price Rises Despite Profit Warning

Westpac Banking Corporation’s [ASX:WBC] share price rose 32 cents on Friday 28 September, despite the bank releasing a profit warning after the market had closed on Thursday afternoon.

The bank has had a bit of a rough ride the past two months, losing almost 8% of its share value since 17 August.

Why did Westpac cut its earnings?

Last week’s profit warning revealed that the bank’s cash earnings for 2018 will be reduced by approximately $235 million.

The increased provisions will cover customer refunds associated with the fee-for-no-service scandal, where financial planners were charging advice fees and no service was provided, dating back to 2008.

The provision also includes refunds to customers who potentially received inadequate financial advice from Westpac planners and additional funds to resolve other legacy issues to do with the bank’s products.

In addition, the cut in earnings relates to the costs involved with the recent litigation, including the breach in responsible lending and the Bank Bill Swap Rate (BBSW) cases.

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What’s next for Westpac?

Details of the costs involved with the prevision are yet to be finalised. Further information will be provided in the full year results.

Westpac’s full year results are scheduled to be released on 5 October 2018.

The program of reviews will continue into 2019, including investigating and considering potential further costs associated with the scandal.

Despite the recent scandals, Westpac believes it is in a strong position to meet the Australian Prudential Regulation Authority’s tightened benchmark for lending standards. Investors will hope that the share price continues to trend upwards along with the bank’s standards.

Matt Hibbard

For Money Morning

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