WBC -2.26%: fell after delivering a missed 1H26 result after net income missed consensus and the dividend came in slightly below expectations. Operationally, there were positives — revenue grew, costs were broadly contained, headcount fell, and capital remains strong — but the market is now looking harder at the sustainability of bank earnings as rates rise, energy costs bite, and credit risk starts to move higher.
1H26 Highlights:
- Net income $3.41bn, vs $3.5bn expected
- Interim dividend 77cps, vs 76cps y/y and 79cps expected
- CET1 ratio 12.4%, vs 12.2% y/y and 12.6% expected
- ROE 9.58%, vs 9.42% y/y
- Group NIM ex-notables 1.89%, vs 1.92% y/y
- Cost-to-income ratio ex-notables 51.7%, vs 51.8% y/y
The positives were around execution. Westpac is clearly becoming a cleaner and more efficient bank, with the UNITE program aimed at simplifying the business and driving productivity benefits over time. Costs were handled reasonably well, the cost-to-income ratio was stable, and the consumer and business divisions both improved half-on-half. Capital is also strong, with CET1 at 12.4%, comfortably above the bank’s 11.25% target.
The issue is that the macro backdrop is becoming less forgiving. NIM slipped year-on-year, the dividend was a touch light, and impairment provisions increased to $5.2bn. Management also flagged that the Middle East conflict is creating challenges for customers, with higher energy costs flowing through to households and businesses. That’s particularly important for WBC, after accelerating balance sheet growth and risk appetite, which may prove poorly timed if higher rates and energy prices start to pressure borrowers.
Overall, not a bad result, but it was not clean enough to excite the market. Westpac is improving operationally, capital is sound, and the dividend remains attractive, but margin momentum is limited, costs are likely to rise as investment spend continues, and credit risk is edging higher.
MM is cautiously bullish WBC ~$38
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