On Monday the Westpac Banking Corp (ASX: WBC) share price edged higher following the release of its first quarter update.
That update revealed that unaudited cash earnings for the first quarter was $2.04 billion, which compares to the quarterly average of $2.05 billion before remediation charges in the second half of FY 2018.
During the quarter the bank's asset quality and capital remained strong. Westpac finished the period with a common equity Tier 1 (CET1) capital ratio of 10.4%.
Although the ratio was lower than the 10.6% reported at the end of September, this was largely down to the payment of Westpac's final dividend. In fact, had the dividend not been paid, the CET1 capital ratio would have increased 49 basis points.
Was this a strong result?
According to a note out of Goldman Sachs, it felt Westpac's underlying earnings trends were softer than expected during the quarter.
In addition to this, because of weaker than expected Treasury and Markets revenues, which Goldman believes could be more structural than previously anticipated, the broker has downgraded its earnings estimates by 3%.
And while the broker believes that its valuation is supportive, it is concerned that a re-rate could be unlikely while these earnings trends remain soft.
As a result, it has decided to retain its neutral rating and has reduced its price target ever so slightly to $29.28. This price target is still materially higher than the current share price.
Should you invest?
Whilst I think that Westpac's shares are in the buy zone at the current level, it wouldn't be my first choice bank share to buy.
At this point in time I have a preference for Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
This is due to their attractive valuations, generous dividend yields, and exposure to business lending. The business lending market has been performing well and I expect it to help offset some of the weakness in the home lending market in 2019.
