Why the Westpac Banking Corp (ASX:WBC) share price sank lower today

One of the worst performers on the ASX 200 on Tuesday has been the Westpac Banking Corp (ASX: WBC) share price.

In morning trade the banking giant’s shares are down almost 5.5% to $26.25.

Why are Westpac’s shares sinking lower?

Although the market is a sea of red today and peers such as Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) have dropped lower, the majority of Westpac’s decline can be attributed to something else.

This morning the bank’s shares went ex-dividend for its fully franked 94 cents per share final dividend. Eligible shareholders can now look forward to receiving this generous dividend in their nominated accounts on December 20.

Federal Court news.

In addition to this, news that that the Federal Court has refused to approve a $35 million penalty given to Westpac after it admitted to breaking responsible lending laws could be weighing on its shares.

According to the ABC, the settlement that was negotiated between Westpac and the Australian Securities and Investments Commission has been declined and the two parties will have to return to court on November 27 for directions.

This was not completely unexpected, though. Last month the AFR reported that former solicitor general Justin Gleeson, SC, told the Federal Court that the $35 million penalty agreed between the regulator and Westpac was not sufficient.

He suggested that the banking giant should pay at least $100 million if it breached lending laws.

What now?

While a penalty of $100 million isn’t overly material for the banking giant, these penalties soon add up and are likely to have a knock on effect on investor sentiment.

And although I still see Westpac as a good investment option due to the low multiples its shares trade on, it certainly isn’t a low risk on anymore.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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