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Westpac Profit Beats Forecast; Sees Growth

Reuters
Wednesday, 31 Oct 2007 | 7:37 PM ET

Westpac Banking, Australia's fourth-biggest lender by assets, beat forecasts with a 9 percent rise in second-half cash profit, helped by strong fund management performance, and said businesses momentum was strong this year.

Westpac, Australia's best performing major banking stock in 2007, did not give a specific earnings outlook for the current year but said it was confident of delivering solid growth in a robust domestic economy, while demand for credit was expected to remain high.

The bank reported cash profit of A$1.829 billion (US$1.7 billion) for April-September, up from A$1.678 billion from a year ago. Six analysts on average had projected profit of A$1.778 billion. Full-year cash profit rose 14 percent to a record A$3.507 billion.

"On balance a good result," said Nick Selvaratnam, managing director of Australian equities research with Credit Suisse. "Profits were driven by stronger revenue in particular from foreign exchange and other trading income and slightly lower bad debts," he said, adding that margin decline was better than its peers.

Cash earnings, effectively the core profit, exclude one-off items and non-cash accounting items, and form the basis for dividends payable to shareholders.

Australian banks are benefiting from 16 straight years of economic growth while three-decade low unemployment has kept bad debt in check, but increased competition from non-bank lenders and foreign banks such as ING and HBOS is increasing costs.

"We remain confident we can continue to deliver strong results for shareholders," outgoing Chief Executive David Morgan said in statement.

Westpac announced in August that Gail Kelly, former chief executive of St George Bank, would replace Morgan, who has been at the helm since March 1999.

Westpac's wealth management division, BT Financial Group, was its strongest performer, with a 23 percent rise in cash earnings for the full year.

Higher Funding Costs

Westpac's stronger-than-expected profit follows uninspiring results from peers Australia and New Zealand Banking Group and St George Bank.

Australian banks are facing higher funding costs due to a global credit squeeze, and Westpac said the dislocation of capital markets would be a key factor in the year ahead.

"If you look at the costing of term funding in the global markets ... we have probably seen the low point historically and they are going to be higher. That will mean that when we roll over our term funding, cost of funds would have actually moved up," chief financial officer Phil Coffey told reporters.

ANZ, St George and regional bank Bank of Queensland have announced plans to collectively raise about A$2.03 billion to sustain strong lending growth.

National Australia Bank, Australia's top lender, is scheduled to release results on Nov. 9.

Westpac shares are up about 26 percent so far this year, the best performing major banking stock, and also outpacing a 19 percent rise in the benchmark S&P/ASX 200 Index.

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