Despite Court Win, Westpac Share Price Could Have Limited Upside

Earlier today, Westpac Banking Corporation [ASX:WBC] was the only member of the Big Four who was trading in the green on the ASX.

The Westpac share price has been in an uptrend since the end of the royal commission and has continued this trend following the federal election:

Source: tradingview.com

At time of writing Westpac shares are logging a modest 0.12% drop following news that it had won the responsible lending case against ASIC.

But the small victory — a mere $35 million fine — is hardly a barometer for Westpac’s ability to continue its climb within the increasingly difficult interest rate environment.

If you’re unaware of the looming threats posed to our big banks and their dividends, even after franking credits survived the last election, you can become better informed via this free report: ‘How Your Bank Dividends Could Be Under Threat’.

Our outlook for the Westpac share price is largely bearish.

As a result, if you’ve invested since December, now could be an opportune moment to lock in the appreciation since then.

Tight squeeze leaves little room for growth

It’s all about interest rates for the Big Four banks from here on.

New Zealand’s central bank RBNZ cut their interest rates last week by 0.5%, and even highlighted that future negative interest rates are ‘easily within the realms of possibility’.

RBNZ attributed the decision mostly to the growing US-China trade tensions which have been playing a role in slowing global growth.

The general consensus is that RBNZ are simply trying to get ahead of the curve of policy easing.

But a world of negative interest rates isn’t a good one, no matter how well you plan for it.

For starters, it makes saving via a bank account increasingly difficult.

My colleague, Ryan Dinse, explains why in this article here.

Australia could be next

And you’d be unwise to think Australia will be immune to the pinch.

National Australia Bank [ASX:NAB] CEO Phil Chronican told The Sydney Morning Herald back in July:

‘It is becoming “practically impossible” for banks to offset the drag of falling interest rates on loans by cutting the returns they offer depositors.’

NAB, CBA and ANZ have all given rate cuts to their customers. And their share prices have suffered from it.

That’s because of the simple fact that ‘decline in interest rates is…all else being equal, a negative on profitability’, says Mr Chronican.

So unless Westpac quickly finds a way to jump in on another rising market with a savvy acquisition — like CBA has done with its recent fintech investment — I’d say look into snagging that appreciation.

Regards,

Lachlann Tierney

For Money Morning