Westpac Banking Corporation (WBC) Update

Submitted by Craig Strzelecki on 13 September, 2007 - 09:53

Westpac Banking Corporation (WBC) has a Buy recommendation and a share price target of $30 from Australian share analysts, UBS. Westpac is the first Australian bank to issue bonds during the credit crisis and tests the market with $850m bond issue. WBC announced it has issued $850m in 3 yr and 5 yr bonds. The 3yrs were priced at 32bp over swap and the 5 yrs at 42 bp over swap. They note: (1) Westbap Banking (WBC) wanted to "test the water" in the debt market. It believes that the banks need to take the lead to set a new benchmark following the credit market crisis; (2) Spreads on the 5 yr are c27-28bp wider than prior to the crisis (3yr slightly less) (3) Demand was strong, with the issue larger than the initial $500m target. However, the issue was much smaller than raisings prior to the credit crunch; (4) Other banks are likely to follow to term out their funding; (5) Some of this higher funding cost will likely be passed through to customers. Only a small deal, but a positive sign: Although this is a small deal relative to Westpac's $350b Balance Sheet and the spreads on this issue are less attractive than previously, we see this issue as a positive sign that some liquidity may be returning to the primary credit market. WBC is well positioned for current volatility. FY07 earnings confirmed: (1) No direct exposure to US sub-prime mortgages. (2) Funding & liquidity - Well diversified. 51% deposits, 27% ST, 18% Term, 4% Securitisation. Wider assets spreads & strong funding should support Majors. (3) Counterpart risk - Not expecting significant impact. $6bn in conduits, -12bp to ACE if brought on B/S. Key drivers for Westpac Banking Corporation (WBC): (1) New CEO appointment a positive (2) Rev-cost gap again positive. Risk: (1) Potential loss of executives (2) Gail has limited Insto or NZ experience. The analyst's price taqrget is based on DCF, SOTP, Int'l peers.

Westpac Banking Corporation Limited is listed on the Australian Stock Exchange (ASX) under stock code WBC. You can view their investor website here. WBC was listed on the ASX on 18 July, 1970. Find out the meaning of the recommendations in this primer. Ted Evans is the chairman of Westpac and the Managing Director is Dr David Morgan. Westpac provides banking, financial and related services. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade WBC. Check your charts and good luck with your share trading!

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