Westpac Shares in Trading Halt: Beginning of End for Big 4? (ASX: WBC)

At time of writing, the share price of Westpac Banking Corporation [ASX:WBC], is flat, as shares are in a trading halt ahead of announcement.

It’s possible in a few years’ time the 52-week high of $30.05 on 27 September may be seen as the last high-water mark for the Westpac share price:

ASX WBC Share Price Movement Chart

Source: tradingview.com

With Westpac slashing its dividend, we look at the extraordinary pressures that Westpac is facing in the short, medium and long-term.

Find out why more dividend cuts are to come. Hint: It’s all about fintechs.

Westpac’s full year results disappoint

Here are the lowlights from the company’s results:

  • Dividend cut 15% from 94 cents to 80 cents
  • 15% fall in cash profit to $6.85 billion
  • New $2.5 billion equity capital raise
  • Return on Equity (ROE) down 225 basis points to 10.75%

The bank also noted it had closed 61 branches to go with a $1.9 billion dollar remediation bill.

CEO Brian Hartzer said the following about the results:

2019 has been a disappointing year. Financial results are down significantly in a challenging, low-growth, low interest rate environment.

Short term, medium term, long term — it all looks bad for Westpac

Our editor, Ryan Dinse had a great piece recently about the fintech arms race that is currently underway.

He even flagged a 12% cut to the Westpac dividend, so off marginally by 3%.

But his thesis that a great ‘Bank Unbundling’ is taking place looks stronger by the day.

It will happen in three steps.

In the short term, you can expect low interest rates to squeeze margins for all of the Big Four banks.

Australian and New Zealand Banking Group [ASX:ANZ] recently reduced franking of its dividend to 70%.

With the National Australian Bank Ltd [ASX:NAB] results out on 7 November, it will be very interesting to see if they tinker with their dividend as well.

Medium term, you can expect challenger banks such Xinja, N26, 86 400, Judo Bank, Volt and Revolut to create competitive pressure, particularly with younger customers.

Banks will then invest in technology to keep up, putting further pressure on cash reserves and dividends.

Long term you may even see these banks try and buy out these challenger banks at a steep premium.

And there’s always cryptocurrency — which may make the very concept of banks obsolete.

Whichever way you slice it, it looks grim for the Big Four banks.

My buddy Ryan takes an in depth look at the future of bank dividends in this special report.

Regards,

Lachlann Tierney

For Money Morning


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Ryan is involved in three publications:


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