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What does CBA’s result mean for Westpac shares?

Kenneth Hall

Westpac Banking Corp (ASX: WBC) shares have been under pressure in recent months. 

The AUSTRAC scandal has hit the Aussie bank hard and seen its Chairman and CEO exit stage left. But while many had written off the banks after the 2018 Royal Commission, could there be hopes of more share price growth in 2020?

Why the Westpac share price could climb higher

I think the strong results from Commonwealth Bank of Australia (ASX: CBA) yesterday could help Westpac.

CBA reported a $4.48 billion half-year profit on Tuesday which pushed the bank’s share price to a new 52-week high. While cash earnings did edge 4.3% lower on the prior corresponding period, it smashed consensus estimates of $4,405 million.

Given the general pessimism around ASX banking shares at the moment, perhaps CBA’s outperformance could help its rival’s shares.

The Westpac share price has been beaten down in recent months after news of the AUSTRAC scandal broke.

Westpac is accused of breaching anti-money laundering and counter-terrorism financing (AML/CTF) laws on 23 million occasions. AUSTRAC launched proceedings against the bank on November 20 but the case has been adjourned until late February or early March.

Since 1 October 2019, the Westpac share price has fallen 14.44% to its current $25.41 valuation.

However, there’s a chance that Westpac could surprise the market with its own first-quarter results on 19 February. The focus in previous years has been on Westpac’s net interest margin (NIM) but that might change this time.

I think investors will be watching the group’s provisions for the ongoing AUSTRAC scandal. On top of this, I’ll be watching Westpac’s capital adequacy ratios to see what impact a big fine could have on the group’s balance sheet.

Foolish takeaway

I still wouldn’t be buying into Westpac shares simply because of the unknowns surrounding the bank.

I’ll personally be waiting until I see Westpac’s first-quarter results and the re-commencement of AUSTRAC proceedings before making any investments.

The post What does CBA’s result mean for Westpac shares? appeared first on Motley Fool Australia.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020