Westpac has announced a $1.3 billion hit to its profit in the second half due to writedowns in its institutional business and provisions for customer refunds and litigation.
Westpac Institutional Bank (WIB) will write down $965 million in assets, including $487 million of goodwill, $344 million of capitalised software and $325 million of other assets including property leases.
“In our annual impairment test, the valuation of our WIB division did not support the carrying value of its assets (mostly intangibles),” the bank said.
“This was partly due to reducing risk in the division through the exit of energy trading, consolidating our Asian operations and reducing our correspondent banking relationships which have all impacted earnings.”
The bank said that the earnings outlook for WIB has been impacted by low interest rates, subdued income from financial markets and increased compliance costs.
$172 million in additional provisions for customer refund payments, associated costs and litigation has also been announced, along with a previously announced hit of $267 million in costs related to the sale of Westpac Life Insurance Services (WLIS).
The $1.3 billion profit hit was partly offset by a $55 million gain from the sale of Westpac General Insurance as well as a reversal of $54 million in previous writedowns associated with the sale of Westpac Pacific which was called off last month.
Westpac also announced that it was conducting a review of premium increases for some life insurance products issued by WLIS between 2010 and 2017 in relation to product disclosure statements.
“This is a complex review where the outcomes are currently uncertain. As such, customer remediation may be required in the future. There is also a risk that the outcomes of the review could impact the financial and/or capital position of WLIS,” the bank said.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
