COMMENT: What is Westpac's real profit number?
Saturday, September 2nd 2023, 8:45AM
This weekend we are again featuring the latest from Jenny Ruth's Substack column.
Westpac plays jiggery-pokery with “statutory” profit numbers
For several years I campaigned to get Westpac New Zealand to report its statutory net profit in its results press release rather than simply “cash” profits.
That was unlike the other three Australian-owned banks that dominate the NZ banking system which all provided the statutory figures.
Even so, those three competitors still tried to persuade everybody – and, unfortunately, largely succeeded – that they should pay more attention to those cash profits, arguing this number was a more accurate guage of performance.
As Massey University banking professor David Tripe says, the cash figure is a measure that doesn’t have any accounting rules specifying what it must and must not include.
“The cash profits are a number that doesn't conform to any accounting standards,” Tripe says.
Which left those numbers open to being massaged and manipulated to show whatever a bank might have wanted to convey each time it reported.
In general, the banks chose to exlude such items as mark-to-market changes in value of hedging instruments and derivatives from their cash figure.
But I've always argued that hedging and derivatives activities are core banking activities and so it didn't make sense to exclude them.
Unlike the cash figure, the statutory figure has the force of law behind it and rules that banks have to follow to arrive at their numbers.
Eventually, Westpac gave in and started providing the statutory profit figure as well as the cash result.
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