Westpac (ASX:WBC) share price sinks 6% despite doubling cash earnings

This banking giant’s shares are sinking on Monday…

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The Westpac Banking Corp (ASX: WBC) share price has come under significant pressure on Monday.

In morning trade, the banking giant’s shares are down over 6% to $24.10.

Why is the Westpac share price sinking?

Investors have been selling down the Westpac share price today after its full year results fell short of expectations.

In case you missed it, Australia’s oldest bank reported a 138% increase in statutory net profit to $5,458 million and a 105% jump in cash earnings to $5,352 million. This allowed Westpac to declare a fully franked final dividend of 60 cents per share and announce a $3.5 billion off-market share buyback.

However, despite its cash earnings doubling in FY 2021, it was still short of the consensus estimate of $5.42 billion.

What else?

Also falling short of expectations and weighing on the Westpac share price was its off-market share buyback. While Westpac announced a significant $3.5 billion buyback, it was lower than the market was forecasting.

The team at Morgans, for example, were expecting Westpac to announce a buyback of $5 billion with its results, whereas Goldman Sachs was forecasting a $4 billion share buyback.

Goldman also notes that the bank’s expenses and net interest margin (NIM) were disappointing.

It commented: “WBC’s 2H21 NIM was down 10 bp hoh to 1.99% (1.98% ex notables) and was lower than our expectations (GSe, -6 bp to 2.03%).”

“On outlook, WBC notes that FY22 Margins are expected to be lower and highlighted exit margin ex. treasury & markets at 1.80% (1.87% Sep-21 half average),” the broker added.

As for expenses, Goldman said: “WBC 2H21 reported expenses were up 22% hoh, 5% higher than GSe. Excluding notable items, 2H21 expenses were up 9% hoh. WBC attributes most of the increase to higher staff expenses (+18%, +14% ex notables) due to the additional 1,396 FTE over the half on higher resourcing needs to improve risk management and compliance and to support customers impacted by hardship.”

All in all, a disappointing result from the banking giant.

One positive, though, is that the Westpac share price is still up 23% in 2021 despite today’s weakness.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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