Items affecting Westpac’s First Half 2021

ASX
Release


26 APRIL 2021

Items affecting Westpac’s First Half 2021
Westpac today announced that its cash earnings in 1H21 will be reduced by $282m (after
tax) due to notable items. Statutory net profit will also be reduced by these items. The
notable items after tax include:
- additional provisions for customer refunds, payments, associated costs, and
litigation provisions of $220m;
- write-down of capitalised software and other intangibles of $115m;
- costs associated with ending the Group’s relationship with IOOF, $56m;
- write-down of goodwill related to Lenders Mortgage Insurance of $84m; and
- an accounting loss on sale in Westpac Pacific along with transaction costs and
payments associated with divestments, $113m.
These losses were partly offset by:
- a net gain on the revaluation of the Group’s investment in Coinbase Inc. of $288m,
- a gain on sale of the Group’s holding in Zip Co Ltd, $18m.
Of the $282m in notable items, $212m were announced in our 1Q21 Market Update with
the remaining net cash earnings impact of $70m (after tax) occurring in 2Q21.
Details of notable items in First Half 2021 are in Appendix 1 and a summary of line item
impacts is in Appendix 2.

Change in software capitalisation policy
Westpac has also changed its software capitalisation policy, increasing the threshold
before a project is capitalised to $20m (previously $1m). This policy has been applied
from 1 October 2020 and will see the Group expense a higher portion of its investment
spending from First Half 2021. The higher expense is not treated as a notable item.
This change had no impact to the carrying value of capitalised software at 30 September
2020.


Level 18, 275 Kent Street
Sydney, NSW, 2000

Page 2 of 4



Additional information to be included in Westpac’s 2021 Interim Financial Results
Following agreements to sell certain businesses within the Specialist Businesses division,
Westpac is releasing details of businesses under the “held for sale” designation. The
businesses include:
- Vendor Finance;
- Westpac General Insurance;
- Westpac Lenders Mortgage Insurance; and
- Westpac Pacific,
As a result of this presentation change we will provide the following disclosures in our
2021 Interim Financial Results:
- the Group’s Consolidated balance sheet will include a separate “Held for sale” line
item in both assets and liabilities which will include the sum of items relating to
these businesses. Tables for Loans, Deposits, Provisions for ECL and Fair values
of financial assets and liabilities will also be impacted.
- net interest income associated with these businesses will also be disclosed in
separate line items and this will impact the Average balance sheet; and
- separate disclosures in section 3.5 Specialist Businesses will outline the cash
earnings contribution of the businesses currently held for sale.
The held for sale classification is only effective from First Half 2021 and therefore prior
periods are not presented on a held for sale basis.
The Group will continue with its existing segment reporting in its 2021 Interim Financial
Results consistent with information provided internally to Westpac’s key decision makers.
Accordingly, the presentation of results will not be affected by the decision to bring
together the leadership of its Consumer and Business divisions into a new Consumer &
Business Banking division.
We are scheduled to announce our First Half 2021 results on Monday, 3 May 2021.

For further information:

David Lording Andrew Bowden
Group Head of Media Relations Head of Investor Relations
0419 683 411 0438 284 863

This document has been authorised for release by Tim Hartin, General Manager & Company Secretary.

Page 3 of 4


Appendix 1 – Details of items affecting Westpac’s Interim Financial Results
Summary 1H21 Cash
earnings
(post tax)
Detail
Write-down
of goodwill
and other
intangibles
$199m
reduction
• Following a review of the Group’s capitalised software, $165m has
been written off as an expense.
• Write-down of goodwill in the Group’s Lenders Mortgage Insurance
business as it is now held for sale. The $84m expense impact was
disclosed with our 1Q21 Update in February 2021.
Additional
provisions for
customer
refunds
payments,
associated
costs and
litigation
provisions
$276m
reduction
The ongoing review of customer remediation has led to the following
changes in provisions.
• $71m benefit to Net interest income, mostly from a reduction in
provisions (as they were no longer required) for business customers
who were provided with business loans where they should have been
provided a consumer loan covered by the National Consumer Credit
Protection Act and the National Credit Code following further reviews.
This was partly offset by higher provisions in Westpac New Zealand
for existing remediation programs.
• $199m decrease in non-interest income from additional provisions
mostly related to:
- aligned and salaried advisor remediation following the completion of
further reviews and an increase in time value of money
assumptions; and
- customers on our platforms who were not advised of certain
corporate actions following the completion of further reviews and an
increase in time value of money assumptions;
• $193m in additional expenses related to:
- $113m in provisions for additional costs associated with
implementing our remediation program as some programs are
taking longer to complete; and
- $80m associated with ending the Group’s IOOF service agreement
that was disclosed with our 1Q21 Update in February 2021.
• $63m for litigation matters, including settlements. This is included in
expenses.
Asset sales
and
revaluations
$193m
increase
• Non-interest income benefitted by $571m, from:
- a $546m gain on the Group’s investment in Coinbase Inc. held in
the Reinventure Fund No. 1 based on a VWAP for private trading in
the first quarter through to 15 March 2021 of US$343.58. The
Reinventure Fund No. 1 held approximately 1.2 million shares.
Coinbase was listed on NASDAQ on 14 April 2021, since then we
have reduced our exposure by around 50% at prices above the
1H21 VWAP. Gains are subject to tax and performance fees;
- a gain on sale of Westpac’s holding in Zip Co Ltd of $25m disclosed
at the Group’s 1Q21 Update in February 2021.
• Expenses associated with asset sales and revaluations of $240m
included;
- provisions for Reinventure performance fees of $122m linked to the
revaluation of Coinbase;
- $121m loss on sale of Westpac Pacific, of which $90m was
disclosed at the Group’s 1Q21 Update;
- transaction and other costs related to announced sales of $27m;
and
- partly offset by $30m of estimated NPV of future earn out payments
related to the sale of the Group’s Vendor Finance business.

Page 4 of 4


Appendix 2 – Summary of 1H21 notable items
1H21 ($m) Consumer Business WIB
New
Zealand
(in $A)
Specialist
Businesses
Group
Businesses
Total
Net interest
income
- 74 - (3) - - 71
Net fee income (3) 1 - (5) 8 (105) (104)
Net wealth
management and
insurance income
- - - - - (88) (88)
Other income - - - - (7) 571 564
Non-interest
income
(3) 1 - (5) 1 378 372
Operating
expenses
(106) (40) (37) (6) (336) (220) (745)
Core earnings (109) 35 (37) (14) (335) 158 (302)
Income tax benefit/
expense and NCI
33 (10) 11 4 38 (56) 20
Cash earnings (76) 25 (26) (10) (297) 102 (282)






1H21 ($m)
Refunds,
payments, costs &
litigation
Intangible write-
downs
Asset sales /
revaluations
Total
Net interest
income
71 - - 71
Net fee income (104) - - (104)
Net wealth
management and
insurance income
(88) - - (88)
Other income (7) - 571 564
Non-interest
income
(199) - 571 372
Staff expenses (83) - - (83)
Occupancy
expenses
- - (82) (82)
Technology
expenses
(1) (165) (12) (178)
Other expenses (172) (84) (146) (402)
Operating
expenses
(256) (249) (240) (745)
Core earnings (384) (249) 331 (302)
Income tax
benefit/expense
and NCI
108 50 (138) 20
Cash earnings (276) (199) 193 (282)