Westpac Banking Corporation (WBC) Update

Submitted by Jim Thesiger on 2 May, 2008 - 16:02

Westpac Banking Corporation (WBC) must retain hold in this challenging environment from Australian Stockmarket analyst Macquarie Research Equities.

Westpac Banking Corp Ltd: Debunking some myths on the sector

Beat consensus but not enough to change our view — despite an above consensus result and showing enough to demonstrate its relative appeal, a more challenging environment warrants a cautious stance on the sector. Retain HOLD.

Capital strength was the highlight — with tier 1 of 7.4%, WBC has proven that Basel II benefits are tangible for Australian banks.

Allayed fears on term funding — Strong liquidity position, with bank indicating term debt raising requirement to fall by $5bn in FY09.

Credit quality good but missed chance to tuck a bit more away — BDD increase was driven by indiv provisions on specific WIB exposures. Given the environment, we might have expected WBC to follow peers in taking steps to increase the collective provision.

Release of tax provisions also helped — bottom line was supplemented to a degree by the bank drawing on over-provisioning from previous periods.

This result has debunked a few myths — the last several months has seen more than a few myths emerge on the outlook for the banks. In this note we disprove a few of them.

Our top pick in a challenging sector — despite a weakening environment, WBC’s balance sheet and funding strength position it well.