Westpac’s desperate $2.5 billion plea
Westpac is hoping to raise $2.5 billion in capital from its investors after a "disappointing year" saw its cash profit plummet.
The country's second largest bank requested a trading halt from the ASX on Monday morning as part of the announcement after revealing its profit tumbled 15 per cent to $6.85 billion in the 12 months to September.
"2019 has been a disappointing year," chief executive Brian Hartzer said. "Financial results are down significantly in a challenging, low-growth, low interest rate environment."
The result has led to the major lender cutting its dividend for the first time in a decade while Mr Hartzer rejected being paid a bonus for the year, turning down a payment worth as much as $4.03 million.
Customer remediation costs of $658 million weighed on the bank's earnings while the investment into its wealth division had cost $172 million for the year.
Mr Hartzer said these internal expenses combined with the low interest rate environment meant the bank had little choice but to seek the massive capital needed bolster its balance sheet.
Shareholders' payments will also be slashed.
"The decision to reduce our second-half dividend to 80 cents per share was not easy, as we know many of our shareholders rely on our dividends for income," Mr Hartzer said.
"However, we felt it was necessary to bring the dividend payout ratio to a more sustainable medium-term range given the capital raising and the lower return on equity."
Westpac said it aims to raise $2 billion via a fully underwritten institutional share placement, and another $500 million via a non-underwritten share purchase plan to give it an increased buffer above APRA's "unquestionably strong" capital benchmark of 10.5 per cent.
The placement will be undertaken at a fixed price of $25.32, a 6.5 per cent discount on the last close and a 8.1 per cent discount to the adjusted five-day volume weighted average price.
The bank's shares were last trading at $27.88 and are expected to remain in a trading halt until Tuesday as it completes its capital raising.
Westpac's big four rival ANZ also cited "challenging" conditions over the year for the sector when it revealed a sharp decline in its core Australian division last week due to record low interest rates and increased competition.
The major lender will pay a partially franked dividend for the first time in 20 years after low interest rates and customer compensation dragged on its local retail operations and led to a flat full-year profit of $6.47 billion.
The bank held its final dividend at 80 cents per share but reduced the franking level from 100 per cent to 70 per cent for its first partially franked dividend since 1999.
Chief executive Shayne Elliott said the franking decision was a result of pressures facing the profitability of the bank's Australian business, which posted a 12 per cent fall in profit to $3.2 billion amid record low interest rates and strong competition.
Factoring in its discontinued wealth operations, ANZ's total cash profit for the 12 months to September 30 rose 6 per cent.
"This has been a challenging year of slow economic growth, increased competition, regulatory change and global uncertainty," Mr Elliott said in a release on Thursday.
"Retail and commercial in Australia had a difficult year … (and) increased remediation charges, intense competition and record low interest rates have had a significant impact on earnings."
- with AAP