We have cut FY19E EPS by 3% given exit costs and larger losses from the Advice business, but we upgraded FY20E by 0.6% (exit from loss-making business). However, our forecasts are yet to incorporate further customer remediation charges (fee-for-no-service) for aligned advisers which are very difficult to estimate. That said, we view the pressure on WBC’s Wealth businesses as somewhat of a warm-up, with the main event being the rapid deterioration in the housing market (68% of WBC’s loan book). With an ongoing tightening of credit as banks move to a stricter interpretation of Responsible Lending (reducing HEM reliance); ongoing switching from Interest Only to P&I; Debt-to-Income caps under Comprehensive Credit Reporting; and potential changes to negative gearing should the ALP win the upcoming Federal election, the economy is weakening sharply and the risk of a Credit Crunch is continuing to rise. Potential changes to NZ capital requirements throw another spanner in the works.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
