Westpac sold down despite good result

David Morgan

Westpac, Australia's fourth-largest bank, met forecasts with a solid rise in first-half earnings on buoyant lending and managed funds, but its shares fell yesterday on concern industry credit growth would slow.

Investors also focused on a big rise in loans 90 days past the due date for interest payments, although Westpac said the rise in delinquencies was expected at this point in the economic cycle and pointed to the strong asset quality of its loan book.

"It was a reasonable result," said Peter Vann, the head of investment research at Constellation Capital Management, adding: "It looks like 90-day arrears have gone up quite significantly."

Cash earnings per share (EPS), which exclude one-off items and non-cash accounting treatments, climbed 12 per cent to 81.7c for the six months ended March 31 from 73c a year earlier. Analysts' forecasts had ranged from 81.2c to 82.9c a share.

Shares in Westpac fell 65c to A$24.37. Other bank stocks were also down after Australia's central bank raised interest rates on Wednesday by a quarter of a percentage point to 5.75 per cent.

Westpac's shares had touched a record A$25.35 this week ahead of the central bank's first rate rise in 14 months.

"We've all been buying these bank stocks in the last month or so for the full dividends," said Stuart Smith, a senior client adviser at Bell Potter Securities.

Westpac announced a better-than-expected 14 per cent increase in its interim dividend to A56c a share. First-half net profit rose 16.5 per cent to A$1.469 billion ($1.766 billion).

Westpac, which owns New Zealand's second-biggest bank and fund manager BT Financial Group, said the overall economic and operating environment remained favourable, despite the challenge of rising oil prices and a softer economy in New Zealand.

"With Westpac's franchise in great shape, we are confident that we will continue to deliver strong outcomes for shareholders," chief executive David Morgan said.

Second-half cash EPS were expected to rise about 11 per cent for the six months to September 30, according to the average forecast from a Reuters poll of seven analysts before the result.

Westpac expected Australia's credit growth to slow by about 2 percentage points to about 12 per cent in the year to March 2007, with business credit growth slowing to about 11 per cent from 17 per cent.

Housing credit growth in Australia has already slowed over the past two-and-a-half years as interest rates have risen, cooling a once-booming Sydney housing market, while business lending is growing at the fastest pace in almost 17 years.

"The New Zealand economy, however, remains challenging," said Westpac, which earned 14 per cent of its profit in New Zealand.

Competition has increased as foreign lenders such as Britain's HBOS expand in Australia, putting pressure on net interest margins, a key measure of lending profitability.

Westpac's margin fell 6 basis points to 2.4 per cent. "Margin compression is going to continue," Morgan said.

Third-ranked bank ANZ Banking Group said last week its margin fell 7 basis points to 2.29 per cent as it posted a better-than-expected 10 per cent rise in first-half earnings.

- REUTERS