This top broker is 'neutral' on Westpac shares

On December 5 the analysts at Goldman Sachs took a look at Westpac's valuation in the wake of the compliance failings scandal and as the RBN (NZ central bank) lifts the capital adequacy requirements on ADIs it regulates.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Westpac Banking Corp (ASX: WBC) shares are loved by retail and institutional investors for their fully franked blue-chip dividends. Admittedly, its reputation got a hosing on the back of the AUSTRAC scandal, but even a record fine a mammoth fine is unlikely to hurt the dividend payouts over the short term. 

On December 5 the analysts at Goldman Sachs took a look at Westpac's valuation in the wake of the compliance failings scandal and as the RBNZ lifts the capital adequacy requirements on ADIs it regulates.

Fortunately Goldman's believes Westpac will be able to fund the additional capital it'll need in New Zealand by using retained earnings from the country.

The analysts also reckon that as Westpac has seven years to meet the new capital requirements the adjustments required won't be as impactful as first feared. 

It still thinks all the Australian banks' NZ subsidiaries are set to take a hit to return on equity in NZ, which is a key measure of profitability.

This is because the more capital banks have to keep idle in reserve, the less they can lend out at profitable returns. Therefore return on shareholder equity falls. 

Goldman's is fence sitting with regards to Westpac's shares in assigning a 'neutral' rating.

It has a 12-month price target of $25.58, versus the $24.24 price shares change hands for today. 

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A man sits thoughtfully on the couch with a laptop on his lap.
Opinions

Why I'm buying more of these 2 ASX stocks ahead of earnings season

I've been excited about buying these investments.

Read more »

Ten smiling business people wave to the camera after receiving some winning company news.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX was back in the black this Tuesday.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Cromwell Property, Metcash, Pilbara Minerals, and Tyro shares are falling today

Let's see why these shares are under pressure on Tuesday.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Share Gainers

Why DroneShield, Hansen, Hub24, and Paladin Energy shares are racing higher today

These shares are having a strong session. Let's find out why.

Read more »

A man in a dark blue suit walks through an airport past floor-to-ceiling windows with a Qantas plane flying in the distance
Travel Shares

Up 16% this year, does Macquarie rate Corporate Travel Management shares a buy, hold or sell?

Does the travel stock have further to fly?

Read more »

Business women working from home with stock market chart showing per cent change on her laptop screen.
Opinions

1 month until ASX earnings season begins: how I'm preparing

It’s almost reporting time. Here’s what I’m looking at.

Read more »

Smiling man with phone in wheelchair watching stocks and trends on computer
Share Market News

5 things to watch on the ASX 200 on Tuesday

A good session is expected for Aussie investors today.

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Opinions

Potential buys: 2 compelling ASX shares I like

These ASX shares have an exciting future.

Read more »