The Westpac Banking Corp [ASX:WBC] share price fell on the release of the bank’s 3Q21 results.
WBC shares are currently trading at $25.36 per share, down 1.69% for the day.
Source: Tradingview.com
Despite today’s fall, the big bank is still up 44% in the last 12 months as the Big Four showed resilience throughout an uncertain year.
Today, we’ll examine the key results from WBC’s release and the potential reasons for today’s price action.
Westpac 3Q21 Overview
Let’s start with mortgages.
The bank disclosed that its Australia mortgage book showed promising results.
Mortgage 90-plus day delinquencies in Australia fell nine basis points to 1.11%.
However, the New Zealand mortgage book saw an increase of four basis points.
Westpac also stated its stressed assets to tangible common equity (TCE) decreased by nine basis points to 1.51% over the quarter.
The loan side also seems to be improving.
The bank stated that it has seen a ‘relatively small number’ of new repayments deferrals related to the recent lockdowns.
The provisions cover for losses showed little change. Provisions being slightly lower than its loan can be a good sign unless the bank has under-provisioned.
Westpac’s Risk Weighted Assets grew by 2% to $8.5 billion over the quarter. This was mostly due to higher credit RWA.
Further, Westpac’s common equity tier 1 ratio stood at 12% in June 2021, down from 12.3% in March 2021.
The primary reason for this drop was the dividend repayment and higher RWA.
Finally, the bank admitted that margins are expected to be lower than the first half of FY21 and expenses are expected to be higher than FY20.
This may explain WBC’s dip today.
WBC share price outlook
The highlight of today’s announcement for many investors was likely Westpac flagging a share buyback.
For instance, Westpac CEO Peter King said the bank’s capital position was strong but asked investors to wait until November for more details:
‘We are well above that 10.5% threshold that APRA set so we do have excess capital.
‘The board will be looking at that at our full-year result about what we do, in terms of a dividend as usual but also looking at a capital return.’
Clime Investment Management Portfolio Manager Vincent Cook said he read that to mean a ‘buy-back is highly likely barring unforeseen developments.’
But what likely led to the market’s mixed reaction to WBC’s announcements today was the reveal that home loans were outpaced by rivals, and, importantly, that margins would be slimmer in the next half.
This also comes after the bank promised to slash $8 billion worth of costs by 2024.
Now, a blue chip like Westpac is a stalwart of the ASX. It gets a lot of analyst attention and, consequently, you could argue a lot is already priced in.
So if you’re on the lookout for other opportunities, it could be useful to check out the small-cap sector.
After all, technological advances of today make it easier for smaller, nimbler players to enter and disrupt traditional industries.
Regards,
Lachlann Tierney,
For Money Morning
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