Why is the Westpac share price sliding today?

Posted: 1 November 2021 12:45 pm

Westpac shares are still up 43% over the past 12 months.

Like its Big Four bank peers, Westpac (ASX: WBC) has been an investor favourite over the last several months as the economy rebounded. However, on Monday it was among the worst performers on the ASX, sliding nearly 6% to $24.20 by the time of writing.

Why has the Westpac stock price been impacted?

Westpac shares have tripped despite the bank announcing a healthy set of full year earnings.

Australia’s second biggest lender reported a 138% increase in net profit to $5.5 billion and a 105% increase in cash profit, driven by a winding back in impairment charges and increasing momentum in the home loans market.

It also unveiled an up to $3.5 billion share buyback, becoming the last of the Big Four to do so, saying the economy is expected to rebound in 2022 and it has a strong capital position after a number of divestments recently.

The bank delivered a fully franked final dividend of 60 cents a share. It also said growth was returning in its lagging mortgages business, with the Australian home loans portfolio growing by 3%, and there was better momentum in the institutional and commercial businesses.

However, the Big Four bank's earnings were below market expectations.

Westpac’s cash earnings of $5.35 billion came in slightly below market forecasts for $5.5 billion.

The bank also indicated intense competitive pressures in the latter half of the year.

Margin, cost concerns

Westpac shareholders have already been jittery after the lender last month outlined a series of writedowns at its investment bank, and additional provisions for customer refunds and litigation costs worth a total $1.3 billion after-tax.

On Monday, the bank noted that its full year net interest margins dropped 4 basis points to 2.04%, prompting Westpac shares to drop more than 6% in early trading to hit their lowest level since March.

The bank’s core profit, excluding the writedowns, was 13% lower for the year. Cash earnings fell in the second half for all its units, including consumer, business, institutional and New Zealand.

“Margins were down in a competitive, low-rate environment, and as we foreshadowed, costs were much higher in FY21. This was mainly due to an increase in our workforce to improve risk management and support higher business volumes,” CEO Peter King said in a statement to the ASX.

It could impact the bank’s longer term program to reduce its cost base to $8 billion by 2024, from more than $12.6 billion in 2020.

Analysts are also worried the weaker than expected underlying result could imply higher costs and the dipping margins in the near term, which could in turn lead to earnings downgrades for the lender.

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