Why the Westpac share price dropped today

The Westpac Banking Group (ASX:WBC) share price declined today in response to its result.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Westpac Banking Corp (ASX: WBC) share price fell 1.2% today in reaction to the bank's half-year result.

All eyes were on what Westpac would do with its dividend considering National Australia Bank Ltd (ASX: NAB) just cut its dividend by 16% in its own half-year report.

Westpac declared a dividend of 94 cents per shares, meaning its dividend was unchanged from the prior corresponding result.

The customer remediation (arising from the issues looked at in the royal commission) continues to dent Westpac's profit. It was a big dent this time, cash earnings dropped 23%. Cash earnings were still down 5% after excluding remediation and other restructuring costs.

Stressed loans (of total loans) rose by one basis point for Westpac. This is a very small rise but with the size of Westpac's loan book it's still a large number and a negative change. Under particular focus is the delinquencies in the Australian mortgage portfolio, which continues to steadily rise, even with Australia's record low interest rates.

Investors may have worried that the $753 million after tax remediation would lead to a cut in the dividend, but with cash earnings per share (EPS) of 96 cents it meant the 94 cents per share dividend was fully funded by cash earnings.

To try to counter revenue pressures Westpac is focusing on its costs. The major ASX bank said that it delivered $146 million in cost savings over the half with further cost initiatives ongoing. Westpac is targeting $400 million in productivity savings by the end of FY19. Part of these savings in the half was cutting 788 of full-time equivalent staff. Not nice for staff, but it helps Westpac's bottom line and cost ratios.

Foolish takeaway

Westpac is now trading at a bit over 11x FY20's estimated earnings with a grossed-up dividend yield of 9.9%. Whilst Westpac looks cheap on the estimated earnings for next year, banks can quickly turn sour if some loans go bad, so I'm not excited about the Westpac share price right now with arrears rising and house prices falling.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

More on Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »