The Westpac Banking Corp (ASX: WBC) share price is dragging the sector lower as management faces off a new shareholder class action.
The WBC share price shed 0.6% in morning trade to $24.50 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.1%.
Westpac is the second worst performing big bank stock at the time of writing. Only the National Australia Bank Ltd. (ASX: NAB) share price is struggling more with a 1% drop to $25.21 as it confronts its own legal challenge from ASIC.
In contrast, the Commonwealth Bank of Australia (ASX: CBA) share price is flat at $81.90 while the Australia and New Zealand Banking Group (ASX: ANZ) share price dipped 0.3% to $25.00.
Details on the class action
We knew it would only be a matter of time before the lawyers circle Westpac given the damning allegations that the bank allowed its payment system to be used for child pornography.
Australian's oldest bank should have known better. Management confirmed today that a class action was filed by Phi Finney McDonald on behalf of some shareholders who acquired shares in the bank between 16 December 2013 and 19 November 2019.
Shameful and painful
The claim relates to market disclosure issues connected to Westpac's monitoring of financial crime over the relevant period. It also includes matters which are the subject of the recent AUSTRAC proceeding.
AUSTRAC is pursuing Westpac through the court for beaching anti-money laundering and counter terrorism laws 23 million times.
There are no other details provided, so we don't know yet how much the claimants are suing for. But what we do know is that Westpac's legal risks are growing as we head into 2020.
Too big a target
Westpac makes too juicy a target for class action funders and lawyers to ignore. Throw in the fact that the scandal is also so shocking and emotive, and you can see why people lining up to take a swing at the bank.
This development makes it all that much harder to assess whether this is a good time to be buying the stock. The sector is already facing pressure from a big squeeze on profit margins, competition from smaller rivals and zealous regulators looking to tighten conditions for the banks.
Foolish takeaway
But it's always the darkest before the dawn, as the saying goes. Westpac's legal woes won't quickly dissipate but these things can take years to drag through the courts. History has shown that selling blue chips on legal risks is a mistake for longer-term investors.
Further, the change in leadership at the bank does present a real opportunity for Westpac to redeem itself in 2020. The thing about corporate anger is that it doesn't seem to last very long and investors soon forgive, if not forget.
Thank goodness tis the season of goodwill.
