What Does Sale of Westpac’s Pacific Business Mean for Its Share Price?

The share price of Australia’s third largest bank Westpac Banking Corp [ASX:WBC] is down slightly today upon the sale of its Pacific business.

WBC shares enjoyed nice growth over the past month as confidence returned to equity markets with the promise of a COVID-19 vaccine within months.

ASX WBC Share Price Chart - Westpac banking

Source: Tradingview

At time of writing the WBC share price is down 0.32% to trade at $20.20 per share — roughly the halfway point to WBC’s price pre-COVID.

Becoming a ‘simpler’ bank

The sale of the WBC Pacific business entails the sale of Westpac Fiji and WBC’s 89.91% stake in Westpac Bank PNG Ltd.

Kina Securities Ltd [ASX:KSL] will purchase the Pacific businesses for up to $420 million.

WBC’s CEO, Jason Yetton, said the sale follows the Bank’s strategic decision to focus on consumer, business and institutional banking in Australia and New Zealand.

We are taking another step in becoming a simpler, stronger bank while ensuring a high standard of banking services is maintained for our Pacific customers, as well as providing new opportunities for our people.

Discover our three favourite stocks to watch as the market recovers. Download your free report now.

The sale price is made up of $315 million payable at completion and $60 million to be paid six-monthly over the following 18 months for Westpac PNG.

The price also includes earn-out payments of up to $45 million, which are scheduled to occur annually over 24 months following completion, and are subject to the business performance of Westpac Fiji.

WBC expects an accounting loss on sale of approximately $230 million including a foreign currency translation reserve.

So, there may be no material financial gain on the immediate sale of the overseas business.

Rather, the new, simpler bank may be more agile and able to extract more return from its assets.

What will this mean for the Westpac share price?

In the previous financial year, Westpac Pacific generated cash earnings of approximately $11 million.

This comprised net operating income of $177 million, expenses of $105 million and impairment charges of $54 million.

WBC expects the sale of its Pacific business will add approximately three basis points to its Common Equity Tier 1 capital ratio.

What this means is that WBC expect their financial strength to improve from the sale.

For investors, it means they could expect a bump in dividends come earnings season, with the general rule of thumb being: a higher Tier 1 the more you can justify paying to shareholders.

If you haven’t read out dividend report already, make sure you do so. We reveal our top five ASX-listed dividend stocks with a great chance of maintaining big payouts during and after the crash. Now that the ASX is just inches away from breaking out of its correction, make sure you don’t miss out on these opportunities. Click here to download your free report.

Regards,

Lachlann Tierney

For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


Leave a Reply

Your email address will not be published. Required fields are marked *

The Rum Rebellion