The Westpac Banking Corp (ASX: WBC) share price has climbed 1% to $31.13 in early trade after Australia's oldest bank revealed the impact the new budget repair levy would have on its business.
Although there are limited details available to calculate the levy's impact precisely, management expects the levy would apply to approximately $615 billion of its liabilities.
According to the release, the impacted liabilities would exclude certain prescribed items which include around $174 billion of financial claims scheme eligible deposits.
As the levy is expected to come into play on July 1, Westpac expects it to impact its second-half results by approximately $65 million after tax.
However, on an annualised basis this will equate to a cost of around $260 million after tax.
Is this going to impact its dividend?
Management has stated that: "No company can simply 'absorb' a new tax, so consideration is being given to how we will manage this significant impost on the bank. We plan to consult with stakeholders, including shareholders, on the Levy."
A cost of $260 million after tax is the equivalent of around 8 cents per share according to management.
With the bank unable to pass the costs onto its customers, unfortunately it seems inevitable that its dividend will need to be cut.
Should you invest?
After their recent decline Westpac's shares certainly look to be a lot better value today than they did a month ago.
However, until the full consequences of the bank levy are known exactly, I would suggest investors stay clear of Westpac, Commonwealth Bank of Australia (ASX: CBA), and the rest of the big four.
