Is the Westpac Banking Corp (ASX: WBC) share price a buy for a turnaround story?
Westpac has had the worst time over the past six months compared to the other banks of Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
Why is Westpac having a bad time?
The main cause is the civil proceedings started by AUSTRAC because Westpac seemingly didn't correctly report a large number of international funds transfer instructions.
AUSTRAC said Westpac had failed in regards to correspondent banking, risk assessments, customer due diligence, transaction monitoring, record keeping and the passing on of certain data. Particularly damning is the allegation that some transfers were for child exploitation.
Why does this matter? Well, AUSTRAC previously fined Commonwealth Bank $700 million for not reporting transactions correctly and the fine for Westpac could be even bigger. A figure of $1 billion has been touted.
Why Westpac's share price could rise
Investors often sell on fear and might buy when things are certain. Westpac is the second bank to recently see an exit of the CEO and Chairman. New leadership could put Westpac on the right track.
The financial services royal commission has been bad for Westpac, but it's a one-off. The AUSTRAC penalty will be painful but it will also be one-off. Assuming there isn't another scandal to come out of the woodwork, Westpac's profit will return to normal and therefore so should the valuation compared to the other big banks.
Westpac is trading at 12x FY21's estimated earnings with a grossed-up dividend yield of 9% if the dividend stays at the current level.
Investors are often short-term focused. Westpac's value and future are more than just what happens in FY20 or FY21.
So, Westpac could be a better value buy today compared to the other major banks, however I wouldn't want to buy it for the long-term – I think there are shares out there that have much better growth prospects.
