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Why the Westpac Banking Corp share price just sank to a 52-week low

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It has been yet another disappointing day of trade for the Westpac Banking Corp (ASX: WBC) share price.

At one stage today the banking giant’s shares were down 1.5% to a 52-week low of $24.52. This brought its year to date decline to a sizeable 21%.

Why is the Westpac Banking Corp share price at a 52-week low?

While the majority of its decline in 2018 has been brought about by the Royal Commission, concerns over falling house prices, and the budget levy, its latest decline has been caused by events across the Tasman sea.

On Friday the Reserve Bank of New Zealand released a consultation paper seeking the public’s view on a proposal to significantly increase the level of regulatory capital in the New Zealand banking system. This includes wanting to increase its current tier 1 minimum capital ratio from 8.5% to 16%.

The central bank believes the proposed changes will further strengthen the New Zealand banking system and protect the economy and depositors from bank failure.

According to the AFR, Macquarie analysts have estimated that if the Reserve Bank of New Zealand follows through with its plans, it may mean each of the major banks has to deploy an “additional $3.5 billion to $5.8 billion into their NZ operations over the next five years, or a total of about $18 billion.”

In order to achieve this, Macquarie suspects that the banks would have to raise capital, which is likely to be dilutive to existing shareholders. Alternatively, its analysts have suggested that the banks could potentially look into divesting their New Zealand operations instead.

A decision is not expected to be made by the central bank until June 2019, which unfortunately means that this is likely to hang over the banks until then.

Should you buy Westpac shares?

While I think that Westpac shares are great value at these levels even after factoring in this latest development, I suspect that investors may not be in a rush to buy them and the shares of rivals Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) until a final decision is made.

In light of this, I still see Westpac as a buy but I wouldn’t be surprised to see them trade flat for the next six to seven months. This could make it worth considering other options in the meantime.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. 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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