Why the Westpac share price is leading the ASX today

Posted: 3 May 2021 12:39 pm

Westpac shares hit an 18-month high after profit results slammed expectations.

Shares in banking major Westpac (ASX: WBC) have recorded their best day in months, jumping more than 4% to hit their highest level in more than a year. At the time of writing, the stock was up 4.2% at $26.04 and helping push up other banking shares too.

The share price surge is likely tied to the eye-popping numbers that Australia’s second biggest lender reported on Monday. Westpac said its half year profit soared 189% from a year ago to $3.4 billion.

If you strip away one-off items and things like hedging impact, the cash earnings were even better, rising 256% to $3.5 billion.

The lender had a torrid 2020 as it dealt with the impact of the COVID-19 pandemic, particularly in its key housing market. It had been forced to make hefty provisions of $1.6 billion last year for potential mortgage defaults, which thankfully haven’t materialised. In addition, it set aside nearly $1 billion for the potential legal liability from the anti money laundering proceedings that financial regulator AUSTRAC is pursuing against it.

But things seem to be finally looking up for the beleaguered lender.

Why Westpac shares are in the green

On Monday, the major bank said the improving domestic economy is propping up lending in the key business and housing segments. Westpac said it had expanded its mortgage book by $2.6 billion in the six months to 31 March, with most of the growth being driven by first home buyers.

You would think the good times would continue, given that home prices are continuing to rise in major cities like Sydney, Melbourne and Brisbane. Westpac agrees, although it thinks the rate of the price rise will moderate in the coming months.

Meanwhile, the lender is trying its best to maintain the profit margins, and says it will cut costs by around $2 billion by 2024 by selling off non-core businesses and improving its digital offerings for customers.

And the best news of all – the fabled bank dividends are back. Westpac, which had to scrap the half year dividend entirely last year because of the economic uncertainty, has offered shareholders 58 cents a share this time around, fully-franked.

Westpac’s promising results should be a booster for the other Big Four banks, two of which, ANZ and NAB, report their own earnings later this week.

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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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