From Macquarie:
- Cash profit missed consensus and our expectations; dividend in line: 1H16 cash profit came in at $3.904bn compared to MRE 1H16 estimate of $4.05bn and consensus of $4.03bn. DPS came in at 94cps, in line with MRE and consensus. The payout ratio of 80% looks elevated and difficult to sustain. WBC will utilize the DRP however no discount will be offered.
- Operating revenue growth was in line with expectations: Revenue growth of 1.0% HoH was in line with MRE of 0.9%.
- NIM increased 3bps to 2.14% from 2.11% in 2H15; we were anticipating a 2bp increase. This was driven by improved deposit spreads on TDs, online and savings accounts, which added 3bps to the margin. Asset spreads were flat, which was a disappointment given the implied ~10bp uplift from mortgage repricing this half.
- Asset growth was in line with expectations, with 3.0% HoH growth compared to MRE expectations of 2.8%. The main contributors to growth were Australian housing (4%), Australian business (2%) and NZ (3%).
- Non NII was weak with -7.7% HoH growth, more subdued than our forecast of -3.6% HoH growth driven by several infrequent items including the sale of BTIM and no Hastings performance fees. Excluding these items, Non-NII declined 1% due to lower cards income and lower WIB fees.
- Cost growth missed MRE at 0.9% HoH; WBC has increased guidance to +3% cost growth for FY16: Cost growth of 0.9% HoH was elevated vs. MRE of -0.2% HoH driven by investment in the business and higher occupancy expenses. WBC expects expense growth to be above 3% for FY16, with higher costs of restructuring and increased regulatory spend driving the increase. The cost to income ratio came in at 41.6%, flat from 2H15. WBC continues to target a sub 40% cost to income ratio by FY18.
- Impairment missed expectations driven by 4 large exposures in WIB: BDD expense came in at 21bps (impairment/GLAA) in 1H16, above MRE of 16bps and 8bps up on 2H15. This miss was principally driven by 4 large exposures within the Institutional division that added $252m to provisions. Impaired assets and 90dpd and were both up by 6bps and 3bps, respectively, with watchlist/substandard loans down 5bps, seemingly due to transfers to impaired. WBC expects asset quality to remain sound in 2H16 with the charge expected to be lower than the 1H16 level.
- Organic capital generation was a bit soft, influenced by RWA growth: WBC CET1 ratio is currently 10.47%, boosted by the recent capital raising (96bps) but slightly below our expectations for 10.58%. Excluding the impact of mortgage risk weights, WBC’s pro-forma CET1 ratio is currently ~9.3%. Organic capital generation for the half was ~14bps, with a 22bps drag from RWA growth.
- Divisional commentary: Consumer bank saw cash earnings growth of 5% HoH, with growth in core earnings partially offset by an increase in impairment charges (higher consumer delinquencies). Business bank saw 3% HoH growth in cash earnings aided by a 1bp increase in margins. Institutional Bank was the main driver of the miss, with pre-provision earnings down 4% HoH from weaker margins and cash earnings down 25% HoH from a material increase in the impairment expense.
Down -4% with other banks hammered too.