Morgan Stanley bullish on Westpac after company announcement

Morgan Stanley

Westpac announced that it will merge its consumer and business divisions into a new Consumer & Business Banking division

Morgan Stanley is bullish on the Westpac Banking Corp share price after the company made two announcements this week as part of its ‘fix, simplify, perform’ strategy.

On Wednesday, Westpac announced that it will merge its consumer and business divisions into a new Consumer & Business Banking division. This division will be led by its current chief executive, consumer, Chris de Bruin.

Westpac Group CEO Peter King said the move would consolidate divisional management and simplify the business.

The combined division will drive simplification of banking and help to reduce cost, including by consolidating support functions, King said.

He said the change will enable more efficient utilisation of common assets such as branches and call centres, and better capitalise on the work underway to improve our capabilities, particularly in service, digital and data.

Yesterday, Westpac announced the sale of its Lenders Mortgage Insurance business to Arch Capital Group. The sale price will be at book value but Westpac will record a loss on sale due to separation and transaction costs, and an $84 million goodwill write down.

The update notes that the transition is expected to add nearly 7 basis points (bps) to Westpac’s Common Equity Tier 1 (CET1) capital ratio. Westpac’s Q1 FY21 update noted that its CET1 capital ratio was 11.87%.

Morgan Stanley believes the recent moves by Westpac are consistent with its ‘fix, simplify, perform’ strategy. The broker believes that stronger mortgage performance along with the sale of non-core assets and improved capital will drive upside to its earnings.

Morgan Stanley rates the Westpac share price as ‘overweight’ with a $25.30 target price. This represents an upside of 2.80% plus a fully franked dividend yield of 2.80%.

The Westpac share price is the most improved of the Big 4 banks this year, up 25%. This compares to the year-to-date returns of Australia and New Zealand Banking GrpLtd, Commonwealth Bank of Australia and National Australia Bank Ltd which are up 23%, 2% and 13.5% respectively.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Getting Money Wise. The information provided on Getting Money Wise is intended for informational purposes only. Getting Money Wise is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

getting money wise

Welcome! Get your FREE access to EVERYTHING we publish…

Our goal is to show anyone how to make investing profitable. You’ll get our FREE weekly newsletter with latest news and information on investment topics along with special offers. Please take time to read our privacy policy . The information you provide us will be processed in accordance with this.