In this briefing:
1. Westpac Banking: Looking Fragile
Westpac Banking (WBC AU) is facing a class action suit regarding alleged irresponsible lending in home loans since 2011. This is the first class action against a major Australian bank since the publication of the royal commission’s final report.
The ramifications of the royal commission report remain a source of debate with elections coming up. But, in general, banks will not be allowed to conduct operations in a “business-as-usual way”. There will be consequences for credit provision.
Westpac’s Balance Sheet looks decidedly fragile as it stands. The bank is entering a slowdown from a position of weakness.
Exposures to Australia’s slowing economy (not unrelated of course to China), the dovish turn at the Central Bank, and in particular its bubbly housing market make us hyper cautious. The highly volatile Aussie dollar tumbled from levels above $0.7200 to below $0.7100 following reports that China banned coal imports from the country at a major port.
Despite the sinking share prices of Australia’s main banks, valuations may still be too high given the varied headwinds.
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