Westpac (ASX:WBC) expects its profit for the second half of the year to be cut by $1.3 billion, due to hefty write-downs and “notable items”.
In an ASX announcement this morning, the bank said the biggest component of the profit slump was the $965 million in write-downs in its institutional business. These write-downs were mostly intangible assets, including goodwill in Westpac Institutional Bank (WIB) and capitalised software.
Westpac said the loss was partly due to reducing risk in the division, through the exit of energy trading, consolidating Asian operations and reduced banking relationships, which all impacted earnings. Medium expectations of a prolonged low interest rate environment, subdued financial markets income and elevated compliance expenses were also contributors to the loss, according to the bank.
An additional $172 million was deducted from extra provisions like customer refunds, payments, associated costs and litigation. Then another $267 million was deducted from transaction costs and an asset write-off relating to the sale of the bank’s life insurance business, which has previously been disclosed.
Westpac noted that these items are estimated to reduce the group’s CET1 capital ratio by around 15 basis points. The banking giant is scheduled to announce its full year results on 1 November, next month.
Shares in Westpac (ASX:WBC) are trading 2.2 per cent lower at $25.48.