The Westpac Banking Corp (ASX: WBC) share price has risen 8.1% in FY18.
Westpac is one of Australia's oldest and greatest institutions. In-fact, it is celebrating its 200-year anniversary this year.
Everyone likes to have an opinion on the banks, so I thought I'd add mine about Westpac to the mix.
Buy case
The best thing about Westpac is its fully franked dividend which is currently sitting at 8.14%, grossed-up. That sure beats the term deposit rate that the bank is offering to savers.
Westpac has steadily been growing for many decades and there's nothing to say that in a decade from now the bottom line won't be significantly higher than it is now.
I think there's something to be said for businesses that approach their corporate responsibilities with a high level of ethical and sustainable practices these days. Invariably these businesses also make good investments because caring about all stakeholders means most of society will benefit and profit. Westpac is always rated as one of the most sustainable businesses.
Bear case
The ultra-long-term outlook for Westpac may be good but I think the shorter-term isn't so rosy.
Westpac is more exposed to the residential property sector than some of its peers. It also appears to have a riskier loan book with a high percentage of interest-only loans. According to its June quarter update the ratio of new interest-only mortgages was 44%. APRA's target for banks is 30%, which Westpac hopes to meet soon.
All the major banks have profited from lower bad debts, but eventually this will turn and start hurting the profits. With Australian household debt ratios being the highest they've ever been, I wouldn't bet on Westpac not having a rough time in a recession.
Foolish takeaway
I wouldn't buy Westpac at the current price, but I would be interested if the economy goes downhill and the Westpac share price follows.
