This top broker is 'neutral' on Westpac shares

On December 5 the analysts at Goldman Sachs took a look at Westpac's valuation in the wake of the compliance failings scandal and as the RBN (NZ central bank) lifts the capital adequacy requirements on ADIs it regulates.

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Westpac Banking Corp (ASX: WBC) shares are loved by retail and institutional investors for their fully franked blue-chip dividends. Admittedly, its reputation got a hosing on the back of the AUSTRAC scandal, but even a record fine a mammoth fine is unlikely to hurt the dividend payouts over the short term. 

On December 5 the analysts at Goldman Sachs took a look at Westpac's valuation in the wake of the compliance failings scandal and as the RBNZ lifts the capital adequacy requirements on ADIs it regulates.

Fortunately Goldman's believes Westpac will be able to fund the additional capital it'll need in New Zealand by using retained earnings from the country.

The analysts also reckon that as Westpac has seven years to meet the new capital requirements the adjustments required won't be as impactful as first feared. 

It still thinks all the Australian banks' NZ subsidiaries are set to take a hit to return on equity in NZ, which is a key measure of profitability.

This is because the more capital banks have to keep idle in reserve, the less they can lend out at profitable returns. Therefore return on shareholder equity falls. 

Goldman's is fence sitting with regards to Westpac's shares in assigning a 'neutral' rating.

It has a 12-month price target of $25.58, versus the $24.24 price shares change hands for today. 

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. 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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