Reuters Australia
Australia's Westpac sees 6-8 pct earnings growth
Friday August 8, 06:06 PM
(Adds analyst quote)
By Mette Fraende
SYDNEY, Aug 8 (Reuters) - Westpac Banking Corp (ASX: WBC.ax) , which is taking over St George Bank in Australia's biggest ever bank deal, assured investors it would avoid the major loan losses suffered by some rivals and was on track to deliver 6-8 percent earnings growth in 2008.
Australia's major banks are under scrutiny after National Australia Bank Ltd (NAB) (ASX: NAB.ax) and Australia and New Zealand Banking Group (ANZ) (ASX: ANZ.ax) issued profit warnings, shaking confidence in their ability to weather the credit crunch.
JP Morgan analyst Brian Johnson said he was not reassured that Australia's banking sector would get through the current turbulent market without taking further beatings.
"The fact is the industry is facing big challenges going forward. Volume growth is slow and asset values are falling," he said on the sidelines of an investor briefing.
Westpac Chief Executive Gail Kelly told the briefing: "We come into the (down) cycle in excellent shape, with a strong portfolio and without the risks that many of our peers appear to have had in their portfolios."
She said Westpac was on track to complete its proposed A$17.2 billion ($15.6 billion) takeover of St. George Bank (ASX: SGB.ax) , which she used to run before joining Westpac. The agreed all-share deal would create the country's biggest bank after NAB.
NAB recently booked another A$830 million ($751.2 million) in losses from its exposure to U.S. mortgages, blaming the worsening global credit squeeze, and ANZ warned its profits would fall sharply and forecast more than $1 billion in bad debt charges as the credit crisis ate into Australia's previously buoyant banks.
Australia's four big banks -- Westpac, NAB, ANZ and Commonwealth Bank of Australia (ASX: CBA.ax) -- have been spared the worst of the fallout of the credit squeeze, partly because they rely heavily on deposits for funding rather than securitisation.
But the recent profit warnings sparked concern among investors, who have seen the local bank index .AXBAJ tumble by a quarter so far this year.
RISING PROVISIONS
"It removes some of the fear factor," Angus Gluskie, portfolio manager at White Funds Management, said of Westpac's assurance. "There's no doubt it's had a moderately positive impact. People are seeing them as a bit of a safe haven."
"Anytime these banks come out with a confirmation that there's no additional bad news, that's certainly viewed as a positive and that's what Westpac's done today," he added.
Westpac shares dipped 0.4 percent at A$23.04 at 0056 GMT in a wider market that was off 1 percent. The other three major banks had lost between 2 and 3 percent.
Westpac said its stressed loans had increased and that it expected higher collective provisions in the second half, though it expected lending to continue to grow.
"Total impaired loans are at similar levels to the first half of 2008," the bank added.
It said revenue growth was expected to be between 8-9 percent in 2008, while underlying margins in the second half were seen broadly in line with the first half.
Westpac also said its term funding in fiscal 2009 was likely to be lower at between A$20 billion and A$25 billion, from A$32 billion in 2008. The merger with St. George was expected to add $10 billion to term funding. ($1=A$1.10) (Additional reporting by Miranda Maxwell; Editing by Mark Bendeich and Louise Heavens)
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