The Westpac Banking Corp (ASX: WBC) share price will be on watch on Friday after a late announcement out of the banking giant relating to provisions for customer payments and related costs to be incurred in its upcoming results.
According to the release, Westpac's full year results for FY 2018 will be reduced by an estimated $235 million following further work on addressing customer issues and from provisions related to recent litigation.
The bank advised that key elements of the provisions include:
- Increased provisions for customer refunds associated with certain advice fees charged by the bank's salaried financial planners due to more detailed analysis going back to 2008. These include instances where advice services were not provided, as well as where Westpac was not able to sufficiently verify that advice services were provided.
- Increased provisions for refunds to customers who may have received inadequate financial advice from its planners.
- Additional provisions to resolve legacy issues as part of the bank's detailed product reviews.
- Estimated provisions for recent litigation, including costs and penalties associated with the responsible lending and BBSW cases.
These details have yet to be finalised and the bank intends to provide further information when its releases its results next month.
Though, as a guide, it expects approximately two-thirds of the impact to be recorded as negative revenue, while the remainder will be recorded in its costs.
It is worth noting, however, that costs associated with responding to the Royal Commission are not included in these amounts. With the Royal Commission report due to be released by Sunday, there's always a chance that these costs could yet increase.
Westpac Chief Executive Officer, Brian Hartzer, appeared disappointed to have to reveal the news. He said "It is disappointing some of our past practices have not lived up to appropriate standards. We are committed to fixing any issue identified, as well as ensuring that any customer affected has not been disadvantaged."
One positive is that despite these new provisions, the bank remains well placed to meet APRA's unquestionably strong capital benchmark.
What now?
While this is very disappointing, I suspect that the market had priced in such provisions. As a result, I would be a touch surprised if its shares were to fall meaningfully tomorrow when they return to trade.
However, any significant weakness could arguably be a buying opportunity once the full details of the Royal Commission report are known. This could also be the case for the shares of banking rivals Australia and New Zealand Banking Group (ASX: ANZ), and Commonwealth Bank of Australia (ASX: CBA).
