March 31, 2015

EastWest Bank nets P2.1b in 2014

BusinessWorld reported that EastWest Bank (EW) posted a net income of P2.1b in 2014, roughly flat vs. its 2013 earnings. This translates to RoE of 10.2% and RoA of 1.3%. Despite the absence of lumpy trading gains last year, EW’s operating income grew 13.1% YoY to P14.9b as it continued growing its core businesses. Its cost-to-income ratio, however, remained elevated at 60%, as the bank continued to feel the costs related to its branch expansion program.

The bank ended 2014 with 358 branches, more than double compared to its 168 branches as of end-2013. EW is scheduled to conduct its stock rights offer (SRO), with pricing date on13 Apr 2015, ex-date on 16 Apr 2015 and tentative listing date on 8 May 2015. The bank will offer up to 371.6m rights shares, with total proceeds that may amount to about P8b.

Our take: EW's results came in below the P2.3b consensus estimate for its 2014 earnings likely due to high operating expenses related to its ongoing expansion. Meanwhile, the bank is undertaking an SRO to shore up capital ratios in preparation for stricter regulatory capital requirements and maintain its current growth trajectory.

Though we expect EW’s cost ratios to normalize starting this year as most of its new branches start contributing to earnings, the impact of a wider equity base resulting from the SRO may further dampen RoE in the near-term. – WealthSec