Westpac launches $3.5 billion share buyback, ASX rises ahead of November Reserve Bank meeting

The Australian share market has risen, building on early gains, while Westpac shares have fallen, despite increasing profit and returning cash to shareholders.

The ASX 200 index closed 0.6 per cent higher, at 7,370.8 points.

All sectors of the market gained ground, with the exception of financials.

Technology and utilities finished as the best-performing sectors.

Mining stocks were mixed, with Rio Tinto (+0.8pc) and Fortescue (+2.9pc) rising strongly, while BHP (-0.5pc) and gold miners fell.

Westpac shares sank 7.4 per cent, to $23.78, making it the worst performer on the benchmark index this session.

That's despite an increase in the bank's profit, as investors focused on a fall in core earnings.

Westpac announced a return of $5.7 billion to shareholders, including a 60-cent final dividend and a $3.5 billion share buyback.

Net profit for the 2021 financial year more than doubled to nearly $5.46 billion, as it recorded a $590 million benefit from provisions that had been earmarked to deal with any pandemic fallout.

After reporting a fall in home lending volumes last year, Westpac increased its Australian mortgage lending 3 per cent this year, but its margins fell and costs increased.

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"Margins were down in a competitive, low-rate environment, and as we foreshadowed, costs were much higher … this was mainly due to an increase in our workforce," Westpac chief executive Peter King said.

"Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be.

"However, we are making progress in changing how the bank is run."

Moody's said the bank's underlying performance was weaker, despite the strong headline profit growth.

"This performance highlights the ongoing pressure on banks' net interest margin, which we expect to continue due to lending competition and low interest rates," Frank Mirenzi from Moody's Investors Service said.

Elsewhere in the sector, shares in NAB lost 0.9 per cent, while ANZ was marginally higher and Commonwealth Bank gained 1.5 per cent.

Shares in energy infrastructure firm AusNet rose 3.6 per cent to $2.56, as it agreed to a $10.2 billion takeover offer by Canada's Brookfield Asset Management.

The $2.65 per share deal with Brookfield topped a $2.60 bid by gas pipeline operator APA in September.

"APA did not indicate that it would be able to offer a full cash alternative or the value level at which any improvement to its indicative proposal could be made," AusNet said in a statement.

The Australian dollar was buying around 75.1 US cents, ahead of the Reserve Bank's Melbourne Cup day board meeting on Tuesday.

On Friday, the RBA did not intervene and buy April 2024 federal government bonds to defend its interest rate target.

The central bank had been maintaining at 0.1 per cent yield target on three-year bonds, but yields rose substantially above that level last week.

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As a result of the RBA inaction, economists have been shifting forward their forecasts of interest rate rises, ahead of tomorrow's meeting.

"We see this as likely confirmation of the policy shift … namely, a bring forward in the forward guidance of the next rate increase and the abandonment of the yield targeting altogether," ANZ economists wrote.

ABC/Reuters