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Morgan Stanley bullish on the Westpac (ASX:WBC) share price

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Morgan Stanley is bullish on the Westpac Banking Corp (ASX: WBC) share price after the company made two announcements this week as part of its ‘fix, simplify, perform’ strategy. 

Westpac combines consumer and business divisions 

On Wednesday, Westpac announced that it will merge its consumer and business divisions into a new Consumer & Business Banking division. This division will be led by its current chief executive, consumer, Chris de Bruin.

Westpac Group CEO Peter King said the move would consolidate divisional management and simplify the business.

The combined division will drive simplification of banking and help to reduce cost, including by consolidating support functions.

The change will enable more efficient utilisation of common assets such as branches and call centres, and better capitalise on the work underway to improve our capabilities, particularly in service, digital and data.

Sale of Lenders Mortgage Insurance Business 

Yesterday, Westpac announced the sale of its Lenders Mortgage Insurance business to Arch Capital Group. The sale price will be at book value but Westpac will record a loss on sale due to separation and transaction costs, and an $84 million goodwill write down. 

The update notes that the transition is expected to add approximately 7 basis points (bps) to Westpac’s Common Equity Tier 1 (CET1) capital ratio. Westpac’s first quarter FY21 update noted that its CET1 capital ratio was 11.87%.

Why broker is bullish on Westpac share price 

Morgan Stanley believes the recent moves by Westpac are consistent with its ‘fix, simplify, perform’ strategy. The broker believes that stronger mortgage performance alongside the sale of non-core assets and improved capital will drive upside to its earnings. 

Morgan Stanley rates the Westpac share price as ‘overweight’ with a $25.30 target price. This represents an upside of ~2.80% plus a fully franked dividend yield of 2.80%. 

The Westpac share price is the most improved of the Big 4 banks this year, up ~25%. This compares to the year-to-date returns of Australia and New Zealand Banking GrpLtd (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) which are up ~23%, ~2% and 13.5% respectively. 

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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