The Westpac Banking Corp (ASX: WBC) share price has been out of form in recent months.
The banking giant's shares have fallen 17% since the start of October. This has been driven largely by its issues around financial crime compliance.
Is the Westpac share price in the buy zone?
One broker that believes that Westpac's recent share price weakness is a buying opportunity is Morgans.
According to a note, Westpac remains the broker's preferred pick in the banking sector.
Its analysts have retained their add rating but trimmed the price target on the bank's shares slightly to $30.00.
This price target implies potential upside of almost 22% excluding dividends over the next 12 months. Including dividends this potential return increases to a sizeable 28%.
Why is Morgans bullish on Westpac?
Morgans estimates that $5 billion has been wiped off Westpac's market capitalisation as a result of the AUSTRAC allegations.
It believes this is excessive and has created a buying opportunity, especially given its strong capital position.
The broker's base case is for a civil penalty of $1 billion for Westpac. Combined with APRA's increased operational risk capital requirement of $500 million for the bank, its analysts believe Westpac has more than enough capital to weather the storm.
So much so, it does not expect the bank to have to launch a capital raising in FY 2020.
Morgans said: "Our base case remains one of no further capital raisings by WBC over our forecast period. In the absence of an AUSTRAC-related civil penalty and assuming no further customer remediation-related charges, we expect WBC to have ~$4.5bn of surplus CET1 capital (at Level 2) at end-FY20F."
"WBC's relative share price performance since the AUSTRAC allegations were announced can be interpreted to mean that over $5bn has been shaved off WBC's market capitalisation as a result of the AUSTRAC allegations. We believe this damage to the share price is overdone. WBC remains our preferred major bank," it concluded.
