Westpac Banking Corporation (WBC) Update

Submitted by Jim Thesiger on 2 May, 2008 - 14:58

Westpac Banking Corporation (WBC) will be judged on the basis of its strong balance sheet and lower-risk business from Australian stockmarket analysts from Citi.

Westpac Banking Corporation (WBC): Westpac’s the Knock-out Punch

Westpac has bounced off its March 08 lows, and it’s solid result yesterday, combined with ANZ’s solid result last week, should give investors more confidence in financials in what has been a testing time for the sector. WBC remains MRE’s top pick in the banking sector, and their 1H08 pre-provision operating performance was exactly as we had expected. Despite a small number of single name exposures increasing their impairment costs, MRE believes WBC will be judged on the basis of its strong balance sheet and lower-risk business.

Westpac Banking Corporation (WBC)Fundamental Analysis

Macquarie Research Equities (MRE) Fundamental View:
1. New Basel II risk-measures disclosed by WBC support our view that WBC is a lower risk, higher return bank compared to peers.
2. WBC’s 7.38% Tier 1 ratio places the bank in a position of strength, with shareholders likely to fair increasingly well as required levels of economic and regulatory capital converge.
3. WBC goes ex-dividend on 19th May. Announced dividend is $0.70 fully franked.
4. WBC declared no requirement for Capital Raisings in the immediate future.
5. New CEO Gail Kelly appears to have made short work of familiarising herself with the bank and we expect a conservative but concerted restructuring of the business.
6. Catalyst: Upcoming Bank results (SGB 6th May, NAB 9th May) and trading updates (CBA 15th May) are likely to further highlight lower risk, and better returns at WBC vs peers.