Banking sector review - Why the banks aren't banks anymore

The banking sector now represents about a fifth of the All Ords and has surged over the past 2 years. In this in-depth feature, we go beyond the stories you normally read and look at the strategic issues facing the industry and how each of the big four are equipped to cope.

By Intelligent Investor · 24 Apr 1998

By Intelligent Investor ·
24 Apr 1998

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Westpac Banking Corporation - WBC

Current price

$26.19 at 16:40 (24 April 2024)

Price at review

$11.14 at (24 April 1998)

All Prices are in AUD ($)

Westpac has the best forecast earnings momentum of the major banks. Driven by a combination of acquisitions (Challenge Bank, Bank of Melbourne and Trust Bank of NZ) and cost cutting, staff numbers are down 5% this year. EPS growth has also been enhanced by capital management. The bank has been securitising low yielding assets off-balance sheet and then conducting share buy-backs, the most recent being 85m shares due for completion by May 15. Further buy-backs are likely.

Westpac also has the safest earnings outlook due to its policy of dynamic provisioning that provides the bank with a significant buffer for bad debts.

The bank has been prepared to lose some market share in order to maintain margins. This strategy is a little different from the other majors, but may prove successful as the interim result due in May could well reveal better than expected profit margins. We rate Westpac a long term BUY for earnings momentum and share price support from future buy-backs.

IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.

Banking sector review - Why the banks aren't banks anymore

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