Westpac full-year earnings snapshot
Nicholas Grove  |  05/11/2012Text size  Decrease  Increase  |  

Nicholas Grove: Westpac has announced its results for the 2012 financial year, and here to give investors his initial impressions of the bank's earnings results, I'm joined again by Morningstar's David Ellis.

David, thanks very much for joining us.

David Ellis: It's pleasure, Nick.

Grove: First of all, David, were Westpac's earnings above, in line with, or below what you were expecting?

Ellis: Westpac came in with some good solid numbers. A little bit higher than we were expecting. The profit came in at just under $6.6 billion, we were sort of looking at about $6.5 billion, and the dividend was $0.01 higher than what we were expecting. But overall, a good set of clean numbers for 2012 for Westpac.

Grove: David, what were the key drivers of Westpac's result?

Ellis: The key drivers were solid loan growth, so round about 4 per cent loan growth. Quite strong deposit growth - customer deposits were up about 12 per cent, 13 per cent - and so net interest income was up a little bit. Non-interest income was up strongly, which was a pleasant surprise following a weak 2011 performance, particularly in the markets and treasury area within the bank. The cost growth was good, it was below, so it was less than the rate of revenue growth, which is a very important measure because then the cost-to-income ratio improved and Westpac has the sector-leading low cost-to-income ratio. So, for every $1 of revenue Westpac earns, they earn more profit than their three other major bank peers.

Grove: Finally, David, was there anything about the result that really surprised you or that will in any way alter your outlook for the bank?

Ellis: No. I suppose the only surprise is that it was moderately better than we were expecting, so it was a pleasant surprise. No negative surprises. Importantly, the indications from the bank and from what we can discern from the result are that the capital position is growing strongly and following our major bank investment thesis, we expect major banks to have surplus capital in approximately 12 months, maybe 18 months time. And with that surplus capital, all other things being equal, and so as long as the economy doesn't collapse, we expect the major banks, particularly Westpac and CBA, to initiate some type of capital management initiatives in 12 to 18 months time, which would more than likely be a special dividend or share buybacks.

Grove: David, thanks very much for your time.

Ellis: It's a pleasure, Nick.

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