At time of writing, shares of Westpac Banking Corporation [ASX:WBC] are marginally lower today, trading at $27.15.
However, this share price is its lowest return in five years.
This comes off the back of a steady slide over the last year as seen below:
There are two main things affecting its stock price.
Royal Commission and funding pressure impacting stock price
First, as a result of the royal commission, investors are factoring in settlement payments, increased compliance costs and decreased profit margins as a result of regulatory measures.
In addition to the royal commission, the Australian Competition and Consumer Commission (ACCC) has indicated that it will investigate the big four banks for gauging Australians on foreign exchange rates.
Secondly, Westpac recently announced that it was raising interest rates on its variable home loans by 14 basis points.
This was an ‘out of cycle’ move that Commonwealth Bank and ANZ copied last Thursday.
Commonwealth Bank raised their variable home loan rate 15 basis points and ANZ raised theirs 16 basis points.
This was in response to ‘funding pressures’ and a slightly decreased ‘net interest margin’ in the June quarter.
Net interest margin is a measure of a bank’s profitability that compares the amount of interest the bank earns from loans with the interest it pays out on deposits.
So while the out of cycle move may improve profitability over the long run, it indicates worsening conditions amid a fall in the housing market.
It might be best to stay away from Westpac for the immediate future.
For Money Morning