(Bloomberg) -- Westpac Banking Corp. shares fluctuated after an increase to its stock buyback offset concern over expenses and the potential hit from lower Australian interest rates next year.
With no details on cost spending for next year, analysts pointed to the firm’s elevated stock valuation and pressure on margins from declining rates. The stock was flat at 11:39 a.m. in Sydney, having earlier slipped as much as 2.5%.
“It actually clouds what is going to be a pretty bad 2025,” Matt Ingram, senior industry analyst at Bloomberg Intelligence, said in a Bloomberg TV interview in Sydney.
Banks are seeing the tailwind of elevated interest rates give way to expectations for cuts by the Reserve Bank of Australia next year. Ingram said those reductions will eat into bank margins as well as Westpac’s ongoing expenses for restructuring that will drag into 2025.
The firm increased its buyback by A$1 billion ($660 million) to A$2 billion, according to a statement Monday. That came as net income reached A$7 billion in the 12 months to Sept. 30, down from A$7.2 billion in the previous year, surpassing the average expectation of A$6.84 billion in a Bloomberg survey of analysts.
“We’ve continued to manage margins well in a competitive environment while growing in line with system in loans and deposits,” said Westpac Chief Executive Officer Peter King, who will retire next month and hand the reins to former business banking head Anthony Miller.
Westpac shares remain the best performer this year among Australia’s four largest banks, up 40%. Investors are watching for more clues on the firm’s strategy under Miller, following its struggles under King to complete a cost cutting and restructuring program.
King indicated the domestic economy remains robust and said he expects relief from Reserve Bank of Australia rate reductions next year.
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“Some central banks have shifted to an easing cycle and the RBA is likely to follow in 2025,” King said. “This will be good news for many households and businesses. Combined with an undersupply of housing, population growth and limited spare capacity across much of the business sector, we expect solid demand for both housing and business credit in 2025.”
Geopolitical Uncertainty
King said it makes sense to maintain a strong balance sheet as geopolitical uncertainty and the impact of overseas elections remain hard to predict.
The bank’s completion of some large technology overhauls allowed it to shrink investment spending by 9% to A$1.8 billion.
What Bloomberg Intelligence Says
Westpac’s profit could fall 10% in fiscal 2025 from 2024’s A$7 billion, which was down 3% vs. 2023. Margin may drop 10 basis points from 2024’s 1.93% — Senior Industry Analyst Matt Ingram. Read report here.
Still, King said he’s leaving Westpac a “simpler, stronger bank.”
(Recasts with commentary from first paragraph. An earlier version of this story was corrected to remove reference to special dividend that was declared in first half.)
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