The recently released announcement of losses within BankWest really makes very little sense to me. The entire loss is attributable (according to the release) to costs arising from the East Coast expansion strategy (which will presumably now be stopped) and, more importantly, loan impairments – up from $88m to $825m.
This is a huge jump – and one I simply cannot understand. As they were foreign owned and never had to produce a single Pillar III release under Basel II I cannot work off any real numbers, but looking to a peer comparison they must have been doing something seriously wrong under the old management for them to have had such a jump.
Not a single one of their competitors has reported anything like this increase in impairment provisions over the last year. Not one. The worst (incidentally, CBA) had them roughly triple in the September to December 2008 period – probably the worst of it. Considering the size of BWA’s retail book in WA (certainly better performing than the East Coast) to me at least this would mean that the losses over East must have been astronomical.
I just can’t see it. Feel free to correct me in comments, though.
4 comments
12 May, 2009 at 05:11
Best Rate Credit Cards
Would this make BankWest a bad investment for CBA? If BankWest had to setup offices, equipment and staff over east, wouldn’t canceling these cost a huge amount? Sounds like they are cutting there losses and focusing on becoming profitable again. Once that happens maybe the CBA will re brand BankWest and complete the takeover.
14 May, 2009 at 18:04
Norris Ralph
Perhaps CBA took a really worst case view, which declared exposures as either black or white (no gray allowed) and therefore inflated the credit deterioration situation at BankWest.
Say, aren’t CBA in final purchase price negotiations with HBOS? (who are in no position to take the asset back)
3 June, 2009 at 13:38
Yong-Long Lai
This could be due to timing of provisioning, if the UK banks provisions as late as possible and Australian banks provisions as early as possible, it would cause a huge increase in provisioning (which is what is written on paper).
Sort of like the difference between paying interest in advance (pre pay: pay for the provision then use it during the year) and paying interest in arrears (post pay: write it off first, then provision as necessary). Pre pay gives the bank a large ‘buffer’ whereas post pay doesn’t give the bank much ‘buffer’ at all.
3 June, 2009 at 16:01
Andrew
I would normally agree, but the reporting under pillar 3 should be fairly uniform wherever it is. Reporting under IFRS should also be uniform.
In theory at least.