The Westpac Banking Corp (ASX: WBC) share price has taken a tumble on Monday.
In morning trade, the banking giant's shares are down almost 4% to $23.14.
Why is the Westpac share price dropping?
The Westpac share price is falling on Monday after investors responded negatively to the bank's full year results for FY 2022.
For the 12 months ended 30 September, Westpac posted a 1% decline in cash earnings to $5,276 million. This reflects earnings declines in the Consumer and Business segments, offsetting earnings growth in the New Zealand and Institutional businesses.
Positively, though, this didn't stop the Westpac Board from declaring a fully franked full year dividend of $1.25 per share, which was up 6% on FY 2021's dividend.
Broker reaction
Goldman Sachs was pleased with the result, noting that it came in ahead of its expectations. The broker explained:
WBC reported FY22 cash earnings (company basis) from continued operations of A$5,276 mn (A$6,568 mn ex notables), which was down 1.4% on pcp but 2.6% above GSe. The beat was driven by higher than expected net interest income (which in turn was due to better NIMs) and better expenses, partially offset by lower non-interest income and higher BDDs.
So why are its shares falling?
The weakness in the Westpac share price appears to have been driven by its net interest margin (NIM).
Although Westpac's NIM was stronger than Goldman Sachs was expecting in FY 2022, its exit NIM disappointed. Particularly given recent updates from rivals. Goldman commented:
Sep-22 exit NIM (ex-Treasury and Markets) was 1.85%, 5 bp higher than the 2H22 NIM (ex-Treasury and Markets) of 1.80%. The extent of the increase in the exit NIM vs. the full-half NIM may underwhelm in light of recent peer results.
In addition, the broker highlights that, as it expected, Westpac has revised its cost base target. This could also be weighing on the Westpac share price a touch today. It commented:
On outlook into 1H23, WBC noted: i) 1H23 costs (ex notable items) expected to be 0%–2% lower. This compares to current 1H23 GSe of broadly flat (-0.3%), ii) Regulatory/compliance costs expected to remain elevated, and iii) FY24 cost target revised to $8.6bn (previously A$8 bn) and we note on a like-for-like basis, our current forecasts imply an FY24E cost base of A$8.8-8.9 bn.
