Why Westpac Shares Slumped Today

Westpac Bank

What Happened to the Westpac Share Price?

Shares of Westpac Banking Corporation Ltd [ASX:WBC] fell more than 2.4% today as bank shares continue to weaken across the world.

Why Did WBC Shares Fall?

Even though interest rates for government bonds have been falling, the cost for corporate bonds has risen.

And as Bloomberg reports:

Australia’s four biggest banks had more than A$500 billion of long-term borrowings at Sept. 30, according to the Australian Prudential Regulatory Authority, three times more than what they owed a decade ago. Another A$227 billion is payable by the end of this year’s third quarter.

This creates problems for the banks. Some of the biggest beneficiaries of the cash flow from the mining boom were Aussie banks. But profits slumping, that means there are fewer dollars pouring into the banking system.

That’s not good news for banks as they only have two ways to accumulate funds — they can either attract deposits or borrow by issuing bonds. If interest rates on bonds rise further, that increases the cost of funding.

What Now for Westpac Banking?

The major Aussie banks have taken a beating in recent months. And this week, Commonwealth Bank of Australia [ASX:CBA] announced that it wouldn’t increase its interim dividend.

That’s more evidence to suggest that the banks are keen to retain as much cash on their books as possible, especially if the Aussie housing market starts to turn south too.

In short, it’s a worrying time for the banks and for bank investors.


Kris Sayce,

Publisher, Money Morning

From the Port Phillip Publishing Library

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Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.

Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

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