sharetrader
Page 15 of 25 FirstFirst ... 5111213141516171819 ... LastLast
Results 141 to 150 of 249

Thread: WBC - Westpac

  1. #141
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default The cost of a deposit guarantee: Part 3

    Quote Originally Posted by Snoopy View Post
    A bit more on this 'Financial Claims Scheme' they have in Australia

    https://www.apra.gov.au/financial-cl...-policyholders

    From the above link:

    -------

    How is the scheme funded?

    If the Government activates the FCS, initial FCS funding will be provided by the Government in order to facilitate timely payments to account holders.

    Amounts paid under the FCS and associated administration costs would then be recovered through the liquidation process through a priority claim. Any shortfalls through the liquidation would subsequently be recovered by the Government through an industry special levy.

    ------

    It does look like this levy is an 'after the event' procedure. If an Approved Deposit taking Institution was liquidated, then:

    1/ Government pays out deposit holders. (Up to $250k under the one banking licence in trouble).
    2/ Government liquidates the ADI to recover its money.
    3/ Government imposes an industry levy to recover any shortfall.

    So this FCS levy that might be applied to Westpac would be to pay out depositors from another industry player that has been liquidated. As Westpac shareholders, this is outside our control unless of course it is Westpac itself that end up in liquidation. But as Westpac shareholders, we will already be 'down the dunny' by that stage: no 'levy' to worry about!
    What this exercise has taught me is that if you want to understand something it is best to look at Chapter 1 of the book first, not Chapter 3!

    From AR2017 p4, the Chairman's report:

    "The bank levy became effective from 1st July 2017."

    So I was quite wrong to say it would be applied retrospectively after a crisis. It is being applied right now in advance of any prospective crisis!

    Continuing from AR2017 p6

    "The Bank levy is now in place but we must continue to agitate for its removal. It is a highly inefficient and distortive tax that places an impost on a small number of Australia's largest taxpayers (ANZ, Commonwealth, NAB, Macquarie and Westpac banks). It discriminates against Australian banks relative to global peers."

    Quote Originally Posted by Snoopy View Post
    "The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the implementation of a levy to fund the excess of certain APRA FCS costs connected to an ADI (Authorised Deposit taking Instituition) including payments by APRA to deposit holders in a failed ADI. The levy would be imposed on liabilities of eligible ADIs to their depositors and cannot be more than 0.5% of the amount of these liabilities."

    The paragraph ends

    "A contingent liability may exist in respect of any levy imposed under the Financial Claims Scheme."

    This implies that this levy, despite being legislated for, has not been collected. But if the Federal Government wanted to collect this levy, how much would Westpac have to pay annually? If we take the amount of money in the Australian arm of the business from customer deposits as a guide, then I calculate an annual levy of up to:

    0.5% x $464,254m = $2,321m per year

    Yes that is right. $A2.3 billion each and every year as a levy (c.f. cash profit for FY2019 of $6.849billion) ! If ever there was a hidden sword of damocles hanging over the Westpac business model, this must be it. But will the Federal government ever implement a levy as draconian as this? And will such a levy in implemented be an annual charge or a one off.
    I reiterate that this bank levy is being collected now. But it is not being levied on retail customer deposits, as I had assumed in my calculation above.

    From

    https://www.aph.gov.au/About_Parliam...ew201718/Banks

    "The tax is expected to raise $6.2 billion over the forward estimates or around $1.5 billion annually" (A cumulative total from all five targeted banks).

    That would indicate that, barring any ADI failure in the four years following 1st July 2017, the levy may cease to be applied after four years. But perhaps four years marks the end of the planning cycle, rather than the end of the tax? If this is the case, there is no signal that that the bank levy total will be capped

    "There is no end date provided for the Bank Levy" (AR2018 p25)

    The balance sheet for FY2019 may be found in AR2019 on p138.

    Continuing to quote from the website referenced above (and adding my own AR2019 cross references):

    "The tax will apply to:

    1/ Corporate bonds [All fixed interest investments that Westpac have introduced to the market under their own name appear to be Tier 1 capital]: These are not applicable for the bank levy due to all Westpac (series 2,3,4,5,6 'capital notes') bonds being 'Tier 1' (see below *). However in the 'Balance Sheet' under 'Liabilities' under 'Debt Issues' there is other 'Senior Long Term Debt' listed: From AR2019 p198 Note 18, $109,340m (FY2019) and $103,159m (FY2018). The majority of Westpac 'Senior Long Term Debt' is held in foreign currencies, refer AR2019 p199 (c.f. same total figure on p198).

    2/ Commercial paper [Includes Securitized Loans, Covered Bonds or 'Securitized mortgages with extra capital added' and 'Structured Notes' for example borrowings financed by energy savings from the purchase] $46,279m (FY2019), $43,171m (FY2018), from AR2019 p198 Note 18.

    I think this category also includes 'Repurchase Agreements' of $10,604m (FY2019) and $9,522m (FY2018) AR2019 p197 Note 17.

    3/ Certificates of deposit [Wholesale rather than personal term deposits], $38,731 (FY2019), $41,534m (FY2018) from AR2019 p195 Note 16, AND

    4/ Tier 2 capital instruments. ( $12,502m (FY2019), $8,310m (FY2018) from AR2019 p200 Note 19)

    (*) It will not apply to

    1/ Additional Tier 1 capital and
    2/ Customer deposits protected by the Financial Claims Scheme (FCS)."

    "A tax of 0.06 per cent will be applied to the liabilities of banks meeting certain size criteria"

    While the parent legislation allows for a levy of up to 0.5% of certain deposits, the reality is that the sum charged is 'only' 0.06%. That sounds like the banks have got away lightly. But we are talking about a sum close to $100m per year nevertheless. And the levy is due 'every year'. So to answer my own question, the levy is not a one off. But the amount collected is not as draconian as the underlying legislation allows (just over 1/10th of the maximum in fact).

    SNOOPY
    Last edited by Snoopy; 05-07-2020 at 02:24 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  2. #142
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default The cost of a deposit guarantee: Part 4.0

    Quote Originally Posted by Snoopy View Post
    The tax will apply to:

    1/ Corporate bonds [All fixed interest investments that Westpac have introduced to the market under their own name appear to be Tier 1 capital] Not applicable for bank levy due to all Westpac (series 2,3,4,5,6 'capital notes') bonds being 'Tier 1' (see below *). However in the 'Balance Sheet' under 'Liabilities' under 'Debt Issues' there is other 'Senior Long Term Debt' listed: From AR2019 p198 Note 16, $109,340m (FY2019) and $103,159m (FY2018). The majority of Westpac 'Senior Long Term Debt' is held in foreign currencies, refer AR2019 p199.

    2/ Commercial paper [Includes Securitized Loans, Covered Bonds or 'Securitized mortgages with extra capital added' and 'Structured Notes' for example borrowings financed by energy savings from the purcahse] $46,279m (FY2019), $43,171m (FY2018), from AR2019 p198 Note 18.

    I think this category also includes 'Repurchase Agreements' of $10,604m (FY2019) and $9,522m (FY2018) AR2019 p197 Note 17.

    3/ Certificates of deposit [Wholesale rather than personal term deposits], $38,731 (FY2019), $41,534m (FY2018) from AR2019 p195 Note 16, AND

    4/ Tier 2 capital instruments. ( $12,502m (FY2019), $8,310m (FY2018) from AR2019 p200 Note 19)

    (*) It will not apply to

    1/ Additional Tier 1 capital and
    2/ Customer deposits protected by the Financial Claims Scheme (FCS)."]


    "A tax of 0.06 per cent will be applied to the liabilities of banks meeting certain size criteria"
    After much consternation in deciding what liabilities to include and what to leave out, I have reached a point where I am going to have a go at calculating the 'bank levy' that Westpac paid in FY2019. The levy would have been payable on averaged account balances, not what was in each account at the end of the year. I have averaged these balances between EOFY2018 and EOFY2019 to get 'averaged balances'. This answer will almost certainly not be correct, but is the best I can do given the financial disclosures available.

    It is interesting to note that in AR2017. the Chairman was vehemently opposed to the bank levy and asked shareholders to keep the pressure up on their MPs to get the tax reversed. Yet in AR2019, I haven't been able to locate even a mention of the tax. Somewhere along the line has it been subsumed into 'other expenses'? But I digress.

    EOFY2018 EOFY2019 FY2019 Averaged Reference
    Corporate Bonds $103,159m $109,340m $106,250m (Senior Debt p198 AR2019)
    Commercial Paper $52,693m $56,883m $54,788m (Repurchase Agreements p197, Covered Bonds, Securitization and Structured Entities p198 AR2019)
    Certificates of Deposit $38,731m $41,534m $40,133m (Certificates of Deposit p195 AR2019}
    Tier 2 Capital Instruments $8,310m $12,502m $10,406m (Total Tier 2 Loan Capital p200 AR2019)
    Total $211,577m

    $211,577m x 0.06/100 = $127m

    In the AR2017 'Westpac wail', the Chairman was talking about an annual tax of about $100m. So I judge my bank levy estimate for FY2019 of $127m as 'somewhere in the ball park'. I have yet to find the actual 'bank levy' figure paid over FY2019.

    SNOOPY
    Last edited by Snoopy; 05-07-2020 at 02:26 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  3. #143
    IMO
    Join Date
    Aug 2010
    Location
    Floating Anchor Shoals
    Posts
    9,696

    Default

    Quote Originally Posted by macduffy View Post
    ABC"s comment:

    https://www.abc.net.au/news/2019-11-...tions/11738642

    I take your point, percy, but confess that I'm tempted. Remember Westpac's lending crisis of the late 80's/early 90's when they were forced into a heavily discounted rights issue? Fortunes were made then...…….
    "The SPP Offer was made to approximately 618,300 Eligible Shareholders2, with valid SPP Applications received from approximately 40,900 Eligible Shareholders. Valid SPP Applications received represent a participation rate of approximately 7% of Eligible Shareholders with an average SPP Application amount of around $18,850."

    w
    We opted out with most.SPP was done at $24.20 current price $25.12.




  4. #144
    Member
    Join Date
    Dec 2019
    Location
    South of the Bombays
    Posts
    287

    Default

    Quote Originally Posted by Snoopy View Post

    In the AR2017 'Westpac wail', the Chairman was talking about an annual tax of about $100m. So I judge my bank levy estimate for FY2019 of $127m as 'somewhere in the ball park'. I have yet to find the actual 'bank levy' figure paid over FY2019.

    SNOOPY
    The Westpac Group Tax Transparency Report for the year ended 30 September 2019 details A$388m of Major Bank Levy paid for FY19 compared with A$377m for FY18. The footnote states these amounts were the cash actually paid for the year, which may be different from the Bank Levy liability for each of FY19 and FY18 however the amounts are consistent y-o-y.

    See https://www.westpac.com.au/content/d...ncy_Report.pdf

  5. #145
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default The cost of a deposit guarantee: Part 4.1

    Quote Originally Posted by Southern Lad View Post
    The Westpac Group Tax Transparency Report for the year ended 30 September 2019 details A$388m of Major Bank Levy paid for FY19 compared with A$377m for FY18. The footnote states these amounts were the cash actually paid for the year, which may be different from the Bank Levy liability for each of FY19 and FY18 however the amounts are consistent y-o-y.

    See https://www.westpac.com.au/content/d...ncy_Report.pdf
    Thanks for this 'Southern Lad'. I did find a reference to the bank levy in the AR2018 Chairman's address on page 7 which stated:

    "The impact of the Bank Levy (which cost an equivalent amount of 8 cents per share) was also considered."

    If we use the number of shares in circulation at EOFY2018 then in 'dollar terms' this impact is:

    $0.08 x 3,434,796,711 = $275m

    That is different to the $377m you quote, although maybe the difference can be explained by the Chairman's use of the word 'impact'. The bank levy is tax deductible. So the 'after tax' impact of a $377m bank levy, based on an Australian corporate 30% tax rate, is:

    $377m x 0.7 = $264m

    The corporate tax rate in Westpac New Zealand is lower at 28%. So this might explain the difference between my calculated $264m above and $275m. Nevertheless it appears my original calculated estimate of the bank levy, my post 142, from studying the annual report is some way out. This means the government is targeting more bank liabilities with this bank levy than I thought. Your figure of $377m for the bank levy over FY2018 is also confirmed (within rounding error) in the CEO's report, AR2018 p10:

    "The Levy cost us $378m this year, $283m higher than 2017".

    So where could I have gone wrong? Much of the 'consternation' I referred to in a previous post I list below.

    1/ Note 24 of AR2019 gives more details on Westpac's Securitized Loans and Covered Bonds. These loans and associated liabilities and Covered bond and Repurchase Agreement total ($66,651m) does not tally up with that presented in the balance sheet ($56,883m). It could be that the bank levy applies to the Note 24 total, and not the balance sheet total.

    2/ I have not considered that the 'Provisions' listed in the balance sheet liabilities that are further broken down in Note 27 are part of the government guarantee. Some of these provisions relate to worker entitlements, in particular leave. Since workers are almost always near the head of the queue to be paid out in the event of a liquidation, I did not consider a government guarantee was required on those payments. Other provisions related to restructuring and impairments on credit commitments. I considered these provisions transient and not indicative of the longer term capital position of the bank. So I didn't count any of this as part of the bank liabilities to be guaranteed.

    3/ I didn't consider that any of the 'Derivative Financial Liabilities' were positions that would need to be bailed out. I considered that most of these were taken out to provide certainty of cashflows and would end up being neutral by the time any underlying loan was repaid.

    I may have been wrong on those 'executive decisions' I made when considering Westpac's liability position. And I don't think that even if I had included all those extra liabilities it would have been enough to make up the difference. But there you are :-(.

    SNOOPY
    Last edited by Snoopy; 12-02-2020 at 07:29 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  6. #146
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default

    Quote Originally Posted by Joshuatree View Post
    "The SPP Offer was made to approximately 618,300 Eligible Shareholders, with valid SPP Applications received from approximately 40,900 Eligible Shareholders. Valid SPP Applications received represent a participation rate of approximately 7% of Eligible Shareholders with an average SPP Application amount of around $18,850."

    We opted out with most.SPP was done at $24.20 current price $25.12.
    I opted out as well Joshuatree. My reason for opting out was that I found out that Jarden's, a very respected and broking house in NZ that I do not have a personal relationship with, have told all their managed portfolio clients as of late last year that they should get out of Australian retail banks - period. Note this is not saying gradually reduce your holding below the index benchmark. They have said 'sell the lot'. To me this is very shocking. The couple of Oz banks I have shares in have been portfolio staples for, well, forever really. They have seen me through good times and bad. I have to admit my 'Oz' portfolio has largely been 'set and forget'. So I have decided to look into these banks, starting with Westpac, very closely. I don't expect banking shares to return to their glory days. But I do expect good steady dividends, which I do note that in the case of Westpac have, since late last year, been cut. Yet how much doom and gloom is to follow that has not already been built into the WBC share price? That is the question that I intend to find the answer to!

    SNOOPY
    Last edited by Snoopy; 02-02-2020 at 09:07 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  7. #147
    Legend peat's Avatar
    Join Date
    Aug 2004
    Location
    Whanganui, New Zealand.
    Posts
    6,435

    Default

    I think you are right not to write off the Australian banking sector holus bolus. It is huge in terms of economic clout and market cap!
    Also there is the cloistered nature of the industry due to it transactional services and also from providing credit which we all know is stimulatory (or not) .
    The banks are thus not just service providers but literally pillars of society and are recognised as such.
    Hence should be in any portfolio at some level
    For clarity, nothing I say is advice....

  8. #148
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default Unpicking the WBC Internal Wealth Managment Business BTFG & Listed BTIM (Part 1)

    Quote Originally Posted by Snoopy View Post
    Westpac run a wealth management business where they manage fund based share portfolios on behalf of clients. Despite only holding a minority stake in what used to be a fully owned wealth management subsidiary, BT, BT is still classed as a 'related corporate body' to Westpac (apparently!). Thus if BT make changes to their clients portfolios, then Westpac must report this to the NZX. All these funds will be in trust for clients.
    I am attempting to unpick the 'Wealth Management' side of WBC from what is left.

    From:

    https://www.pendalgroup.com/about/corporate-approach/

    We learn that what was "BT Financial Group Australia" , a part of Westpac, is an unrelated business to "BT Investment Management Limited", the listed entity.

    I need to 'unpick the wealth business' because:

    1/ Westpac have reduced their links to the separately listed wealth management arm "BT Investment Management Limited" (BTIM, now renamed 'Pendal Group') to around 10%, with the expectation that this residual holding will be sold.

    2/ Westpac have also disestablished their internal wealth management division "BT Financial Group Australia".

    This means historical comparisons are going to be difficult from here on in. Westpac have redone their comparatives for FY2018 and FY2017 to account for this latter change at least. But I want to do the full exercise for FY2016 and FY2015 as well.

    So let's get on with this unpicking exercise...

    -------------

    The following information may be gleaned from the respective annual reports under the note for "Investments in Subsidiaries and Associates."

    --------

    1/ The separately listed wealth business was first partially floated on 10th December 2007. On that date 40% of "BT Investment Management Ltd" (BTIM) (BTT.AX) was floated to the public. A net gain of $141m, pre tax, was generated on this sale (AR2008 p82/p141).

    2/ On 23rd June 2015 Westpac reduced their 60.8% holding in BTIM to 31.0% with an institutional and retail offer. Westpac made a gain in two ways doing this. The gain included a 'realised gain' of the 28% of BTIM sold ($492m) and an 'unrealised gain' of the 31% interest retained ($544m). This resulted in a total pre-tax gain of: $492m + $544m = $1,036m (AR2015 p77/p135/p245).

    3/ On 26th May 2017 Westpac sold a further 19% of BTIM (carrying value $471m) reducing their holding to 10% (residual carrying value $242m). The result was a net gain (net of transaction costs before tax) of $279m (AR2017 p139/p227).

    Market Value Book value Profit on Transacction
    Shares Sold $630m - $471m =$159m (Gross proceeds on sale of 19% stake)
    Shares Retained add $375m -$242m =$133m (Mark to market revaluation of residual stake)
    Shares Total $1,005m -$713m
    less ($13m) (Former associate profit transferred to profit or loss)
    equals $279m (Total Gain as a Result of BTIM sales)

    In the the end of year accounts for FY2017, the remaining 10% of BTIM owned was reclassified from an 'associate' to an 'available for sale security' at a market value of $375m (This is the value of the 'residual stake' at the time of the sale of the other 19%).

    4/ In FY2018 there was a $104m write down in the residual value of 'Pendal Group' (p160 AR2018). (Name Change Note: A decade on from the float, following approval from its own shareholders, BT Investment Management Limited (BTIM) changed its own company name to "Pendal Group Limited" (PDL.AX) on 27 April 2018).

    The accounting value at EOFY2018 of the 10% residual stake on the books was therefore:

    $375m - $104m = $271m

    This writedown must have been because the price of Pendal shares showed a 'significant or prolonged decline in fair value below cost'. Before the implementation of AASB 9 in FY2019, these changes in value were only made in exceptional circumstances. Nevertheless the fall in Pendal share price from $11.5 (EOFY2017) to $8.79 (EOFY2018), while substantial, represents a loss in capital value of 'only' $69.1m for Westpac's stake. I don't know why the recorded loss blew out to $104m.

    5/ Over FY2019, WBC continues to own their 10% residual shareholding in Pendal. However the residual shareholding remains on the 'may be sold' list. Consequently Westpac has elected to remove any contribution from Pendal from what they term their 'cash earnings' (p147 WBC Annual Result Presentation 2019). 'Cash Earnings' is a construct by Westpac which they consider best reflects the performance of their underlying business. 'Cash Earnings' in this sense is a bit of a misnomer because the now excluded 'Pendal dividend received' is indeed cash!

    -------

    Now we return to figures associated with the FY2018 WBC balance date of 30th September 2018 (after the Pendal name change). At that time the Westpac internally owned and managed fund business arm was still called "BT Financial Group Australia"! But this is not really remarkable, because "BT Investment Management Limited"(BTIM) (now Pendal) and "BT Financial Group Australia" were truly distinct and separate entities.

    By EOFY2019, what was the Westpac division "BT Financial Group Australia" has been split up and the business sub units reallocated within other Westpac divisions. The effect of this can be demonstrated by looking at two different reporting perspectives the reallocation of FY2018 earnings between Westpac divisions in accordance with the table below:

    Westpac Business Unit Cash Earnings FY2018 (from AR2019 p157) FY2018 (from AR2018 p155) Difference
    Consumer Bank $3,423m $3,140m +$283m (+9.0%)
    Business Bank $2,756m $2,159m +$597m (+28%)
    BT Financial Group $0m $645m -$645m (-100%)
    Westpac Institutional Bank $1,093m $1,086m +$7m (+0.65%)
    Group Business ($141m) $101m -$242m (NM)
    Total Australian Cash Earnings $8,065m $8,065m $0m


    As you can see from AR2019 retrospective reallocation, what was the remaining BT business unit, the 'BT Financial Group' has been 'written out of history' a year down the track.

    As was reported in the news at the time:

    https://www.smh.com.au/business/bank...19-p515cr.html

    "Westpac will continue to provide life insurance and a wealth management platform, Panorama, under the BT banner and will refer clients seeking financial advice to a panel of firms, as it would with people needing accounting or legal advice."

    So Westpac still owns the "BT brand" and will still use the BT label on certain products.

    "Chief executive Brian Hartzer on Tuesday said selling investment advice had become unprofitable, citing rising costs and the impact of the Future of Financial Advice (FOFA) laws, which banned advisers from receiving commissions on investment products."

    This is an extraordinary thing to say when just one year earlier Westpac's internal wealth management division made cash profits of $645m (see above table). However, Hartzer must have only talking about giving 'personal advice'. Only the small bit of the internal wealth business ('personal advice') that hasn't been reallocated (see above table) has been on sold to "Viridian Advisory". So who are 'Viridian Advisory'?

    -------

    "Viridian Advisory will take over part of the bank's advice arm while the rest of Westpac's BT Financial Group businesses - private wealth, superannuation, life insurance and investments - will be rolled into its consumer and business banking divisions."

    "The change would result in about 900 job losses, Mr Hartzer said, with Viridian offering employment to about 175 BT salaried positions (including 90 financial advice staff , and other management and support staff)."

    "Viridian's chief executive and co-founder, Glenn Calder, said the deal with Westpac would set the firm up for "strong growth", 2as the industry focused on fees for service and the provision of quality advice."

    --------

    Through all of this I have not found any mention of how much Viridian paid to WBC to take over the personal advice business. Considering it was loss making, maybe only a token amount? In the annual results presentation for FY2019 on slide 17, a sale of $10m of 'financial planning assets' was reported. This exit from the "financial planning business" is expected to lead to a $50m loss in 'non-interest income' (slide 28 ARP2019). Nevertheless,

    "quitting financial advice is predicted to remove about $280 million in annual costs"

    for Westpac.

    Some more background on Viridian may be found here:

    From:

    https://www.professionalplanner.com....-for-9-months/

    -------

    Viridian is an unlisted company which currently (prior to the Westpac advisor buyout) has six offices across four states and a “ten or twelve-year history”, according to Calder. Most of the employees are former Westpac staff who banded together to purchase the business from the bank.

    “The nucleus of our company comes from Westpac,” he said. “All of our staff and some of our clients are shareholders and you need to be a connected party to have an ownership stake in Viridian.”

    --------

    SNOOPY
    Last edited by Snoopy; 24-07-2020 at 09:36 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  9. #149
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default The cost of a deposit guarantee: Part 4.2

    Quote Originally Posted by Snoopy View Post
    After much consternation in deciding what liabilities to include and what to leave out, I have reached a point where I am going to have a go at calculating the 'bank levy' that Westpac paid in FY2019. The levy would have been payable on averaged account balances, not what was in each account at the end of the year. I have averaged these balances between EOFY2018 and EOFY2019 to get 'averaged balances'. This answer will almost certainly not be correct, but is the best I can do given the financial disclosures available.

    It is interesting to note that while in AR2017. the Chairman was vehemently opposed to the bank levy and asked shareholders to keep the pressure up on their MPs to get the tax reversed. Yet in AR2019, I haven't been able to locate even a mention of the tax. Somewhere along the line has it been subsumed into 'other expenses'? But I digress.

    EOFY2018 EOFY2019 FY2019 Averaged Reference
    Corporate Bonds $103,159m $109,340m $106,250m (Senior Debt p198 AR2019)
    Commercial Paper $52,693m $56,883m $54,788m (Repurchase Agreements p197, Covered Bonds, Securitization and Structured Entities p198 AR2019)
    Certificates of Deposit $38,731m $41,534m $40,133m (Certificates of Deposit p195 AR2019}
    Tier 2 Capital Instruments $8,310m $12,502m $10,406m (Total Tier 2 Loan Capital p200 AR2019)
    Total $211,577m

    $211,577m x 0.06/100 = $127m

    In the AR2017 'Westpac wail', the Chairman was talking about an annual tax of about $100m. So I judge my bank levy estimate for FY2019 of $127m as 'somewhere in the ball park'. I have yet to find the actual 'bank levy' figure paid over FY2019.


    Quote Originally Posted by Snoopy View Post

    So where could I have gone wrong? Much of the 'consternation' I referred to in a previous post I list below.

    1/ Note 24 of AR2019 gives more details on Westpac's Securitized Loans and Covered Bonds. These loans and associated liabilities and Covered bond and Repurchase Agreement total ($66,651m) does not tally up with that presented in the balance sheet ($56,883m). It could be that the bank levy applies to the Note 24 total, and not the balance sheet total.

    2/ I have not considered that the 'Provisions' listed in the balance sheet liabilities that are further broken down in Note 27 are part of the government guarantee. Some of these provisions relate to worker entitlements, in particular leave. Since workers are almost always near the head of the queue to be paid out in the event of a liquidation, I did not consider a government guarantee was required on those payments. Other provisions related to restructuring and impairments on credit commitments. I considered these provisions transient and not indicative of the longer term capital position of the bank. So I didn't count any of this as part of the bank liabilities to be guaranteed.

    3/ I didn't consider that any of the 'Derivative Financial Liabilities' were positions that would need to be bailed out. I considered that most of these were taken out to provide certainty of cashflows and would end up being neutral by the time any underlying loan was repaid.

    I may have been wrong on those 'executive decisions' I made when considering Westpac's liability position. And I don't think that even if I had included all those extra liabilities it would have been enough to make up the difference. But there you are :-(.
    I have plucked up the courage to make my changes and see if I can improve my estimate of how the bank levy was calculated.

    The problem is that if we use the known amount of the Bank Levy paid over 2019 of $388m, then at the declared rate of 0.06%, we must be looking at an averaged levied bank liability balance of:

    $388m / 0.0006 = $646,667m

    That is a huge step up from the $211,577m total listed in the table above. So let's do the recalculation.

    EOFY2018 EOFY2019 FY2019 Averaged Reference
    Corporate Bonds $103,159m $109,340m $106,250m (Senior Debt p198 AR2019)
    Commercial Paper $63,211m $66,651m $64,931m (Repurchase Agreements Covered Bonds, and Securitization p248 AR2019)
    Certificates of Deposit $38,731m $41,534m $40,133m (Certificates of Deposit p195 AR2019}
    Provisions $2,026m $3,169m $2,598m (Provisions p253 AR2019}
    Derivative Financial Instruments $24,407m $29,096m $26,752m (Total Net Derivatives p206 AR2019}
    Tier 2 Capital Instruments $8,310m $12,502m $10,406m (Total Tier 2 Loan Capital p200 AR2019)
    Total $250,530m

    Even with adjustments this total is still $400,000 shy of the total I was expecting. This means something is still badly wrong in my 'reimbursable liabilities base'. Looking through the liabilities in the balance sheet again, the only item that can make up that kind of difference is 'customer deposits'. If we look in note 16 AR2019 page 196 we can see that total Australian deposits (less the certificates of deposit that I have already counted) add up to: $468,254m - $30,367m = $437,887m. I have excluded the 'New Zealand' and 'Other Overseas' deposits because it is doubtful an Australian Bank Levy would cover overseas deposits for non-Australians. Take away the derivative guarantees again (I am still dubious about those) and we are getting close to that implied liability base number. The Australian bank term deposits must be covered by the bank levy after all! This is the only reasonable explanation I can think of to explain why the bank levy charge paid by Westpac is so high.

    SNOOPY
    Last edited by Snoopy; 05-07-2020 at 03:08 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  10. #150
    On the doghouse
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    9,221

    Default The cost of a deposit guarantee: Part 4.3

    Quote Originally Posted by Snoopy View Post
    Even with adjustments this total is still $400,000 shy of the total I was expecting. This means something is still badly wrong in my 'reimbursable liabilities base'. Looking through the liabilities in the balance sheet again, the only item that can make up that kind of difference is 'customer deposits'. If we look in note 16 AR2019 page 196 we can see that total Australian deposits (less the certificates of deposit that I have already counted) add up to $437,877. I have excluded the overseas deposits because it is doubtful an Australian Bank Levy would cover overseas deposits for non-Australians. Take away the derivative guarantees again ( I am still dubious about those) and we are getting close to that implied liability base number. The Australian bank term deposits must be covered by the bank levy after all! This is the only reasonable explanation I can think of to explain why the bank levy charge paid by Westpac is so high.
    I have gone back to my original assessment of 'guaranteed liabilities' and added back in Australian customer bank account balances. I wasn't happy with the changes in iteration 4.2 which were made to try and 'get the numbers to fit'. I am estimating my 'average' from knowing the start of year and end of year end point values (which is not an entirely accurate method, but is acceptable given the inputs we have available).

    EOFY2018 EOFY2019 FY2019 Averaged Reference
    Corporate Bonds $103,159m $109,340m $106,250m (Senior Debt p198 AR2019)
    Commercial Paper $52,693m $56,883m $54,788m (Repurchase Agreements p197, Covered Bonds, Securitization and Structured Entities p198 AR2019)
    Certificates of Deposit $38,731m $41,534m $40,133m (Certificates of Deposit p195 AR2019}
    Customer Deposits (Australia) $437,887m (Non-interest bearing, interest bearing at call, interest bearing term p196 AR2019}
    Tier 2 Capital Instruments $8,310m $12,502m $10,406m (Total Tier 2 Loan Capital p200 AR2019)
    Total $649,464m

    Bank Levy Estimate Calculation for FY2019

    0.0006 x $649,464m = $390m

    This is very close to the declared bank levy figure of $388m. I don't expect my calculation to match the actual figure exactly. That is because, customer deposits aside, I am calculating an average over the year by just knowing the beginning and end points. The other data that I need in between to calculate a true annual average data is missing. Yet I am very encouraged that my calculated figure is so close. Why is this a big deal? Because now I can use the same method to calculate what the bank levy would have been if it had been in place over the whole of FY2017, FY2016 and FY2015. And I need to do that so that I can decouple operational performance of the bank from any extra taxes imposed.

    SNOOPY
    Last edited by Snoopy; 05-07-2020 at 03:04 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •