Why is the Westpac share price the worst performing among major banks?

Posted: 13 December 2021 1:21 pm
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Westpac shares are down 21% over the past 6 months, continuing their fall during today's trading.

Shares in banking major Westpac (ASX: WBC) are marginally higher on Monday at $20.87 but that is little solace for investors who have seen almost the entire gains from the last year wiped out since the start of November, even as the other 3 major banks have recorded healthy increases between 20-25% over the year.

What is weighing on the Westpac stock price?

Westpac shares seem to have lost their way since Australia’s second-biggest lender announced its full-year earnings at the beginning of November.

It posted a 138% rebound in net profit to $5.5 billion and unveiled a $3.5 billion share buyback.

But it wasn't enough to change sentiment.

In fact, shareholders were more focused on the fact that cash earnings came in slightly below market forecasts.

The bank also revealed intense competitive pressures in the latter half of the year which impacted margins and extended cost pressure, on top of a series of writedowns at its investment bank and additional provisions for customer refunds and litigation costs.

Things haven’t really improved since then, with the corporate regulator late last month launching 7 court cases against Westpac for widespread compliance failures, with the bank agreeing to compensate around $80 million to the estates of its affected deceased customers and paying another $113 million in fines.

Last week, Westpac was forced to extend its $3.5 billion share buyback by almost 2 months to 11 February, and alter some other terms such as the discounting range, because of the slide in the share price since the offer was originally announced in November.

Downgrades

That triggered a further downgrade from analysts, many of whom had already slashed their expectations based on Westpac’s worrying trend of margins and expenses.

Brokerage Jefferies said the weak share price will likely reduce the fully-franked dividend component of the buyback and diminish its attractiveness. The analysts, who slashed their price target to $19.20 from $24.30 earlier, said a trading update in late January is likely with the bank’s net interest margin expected to continue shrinking.

They also said Westpac’s target of cutting $8 billion in costs by FY24 was flawed, a view shared by analysts at Goldman Sachs, who believe the cost target should be more heavily discounted. Goldman has a "neutral" rating on Westpac, with a price target of $25.60 a share.

Only 3 out of 15 analysts now hold a "buy" rating on Westpac shares, with another 3 with a "sell" rating and 9 with a "hold" or equivalent, according to Refinitiv data. The brokerages have a median price target of $24.58.

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