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Why is the Westpac (WBC) share price leading today?

Posted: 26 May 2022 12:59 pm
News
WBC-shares-26May_1800x1000_Finder

Shares in the Big Four lender have notched up gains of more than 10% in the last 6 months, continuing their strong growth today.

Shares in Westpac (ASX: WBC) are among the most traded stocks on the ASX and also leading the banking sector in the green.

The stock is up 1.2% to $24.16 at the time of writing.

By comparison, each of the 3 other major banks – Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB), and Australia and New Zealand Banking Group (ASX: ANZ) were up around 0.5% each.

Why is the Westpac stock price in the spotlight today?

Westpac shares are getting a thumbs up from investors after the Big Four lender sealed a deal with super fund administrator Mercer Australia to divest its BT superannuation unit as well as sell its Advance Asset Management business.

Under the deal, BT's personal and corporate superannuation funds (which had total funds under management of $37.8 billion) will be merged with Mercer Super Trust through a successor fund transfer, while the Advance business (which managed assets worth $43.7 billion) will be a straight sale.

The 2 transactions will result in an after-tax gain of $225 million for Westpac over FY22 and FY23. The merger and sale are expected to deliver an increase of about 8 basis points in Westpac's common equity tier 1 (CET 1) capital ratio, the lender said.

Westpac had booked an after-tax write-down of capitalised software and goodwill for the superannuation business in its first half results outlined earlier this month. Further, separation and transaction costs of $80 million will be expensed in the second half results.

Australia's second-biggest bank by market value cut costs and stuck to its $8 billion cost reduction target by FY24, unlike its more fancied rivals. Investors would be happy to see it maintain that momentum by continuing to divest unwanted businesses.

Rising rates

Meanwhile, the bank is also maintaining the momentum of rising rates in the key mortgage market after lifting fixed rates for owner-occupiers and investors, by up to 80 basis points in some cases.

Subsidiaries St.George, Bank of Melbourne and Bank SA have also hiked rates in all fixed rate categories.

Westpac now has the highest rates of the Big Four banks in all categories except the 5-year rate, for owner-occupiers paying principal and interest, according to RateCity.com.au.

A 1-year fixed rate is up by 80 basis points to 3.59%, 2-year rates up by 60 basis points to 4.29%, 3-year rates go up to 4.69%, while 4-year rates are now at 4.79%.

Each of the Big Four banks have rushed to increase fixed home loan rates in recent months as they gear up for RBA's move to push the cash rate significantly higher. The central bank kickstarted with a 25 basis points increase last month and is set to follow with a similar increase in June and coming months. Some analysts are expecting the cash rate to hit 2% by year end.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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