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Is the Westpac share price suddenly back in the “buy” zone?

Brendon Lau

Some people bring happiness where ever they go, others whenever they go. The latter may apply to the Westpac Banking Corp (ASX: WBC) share price after this mornings announcement that the bank has booted its embattled CEO Brian Hartzer.

The chairman Lindsay Maxsted will also bring forward his retirement to early 2020 and fellow director and head of the risk committee, Ewen Crouch, will leave the bank at next week’s AGM.

Shareholders, the government and other stakeholders were pressuring the bank to make big changes to its leadership team following damning allegations that Westpac facilitated child sex exploitation as it turned a blind eye to money laundering.

Westpac share price outperforms

The Westpac share price jumped 1.2% to $24.73 in early trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained half of that.

In contrast, the Commonwealth Bank of Australia (ASX: CBA) share price and National Australia Bank Ltd. (ASX: NAB) share price increase around 0.5% and the Australia and New Zealand Banking Group (ASX: ANZ) share price slipped 0.1% at the time of writing.

Westpac became un-investable without a big shake-up in the leadership team, in my view. From that perspective, I think Westpac is starting to look interesting again after it lost nearly 16% of its value over the past month. You don’t need to ask me if I welcomed the news!

Share price catalyst

It’s worth noting that stocks often outperform after ousting unpopular leaders. National Australia Bank Ltd. (ASX: NAB) is the most recent relevant example. The departure of its former chairman Ken Henry and CEO Andrew Thorburn in February this year lit a fire under the stock.

Both men also came under intense pressure to quit following their appearance at the Banking Royal Commission.

From February till mid-November, the NAB share price surged 21% to become the best performing big bank stock in 2019. I think its reluctance to announce a capital raising to shore up its balance sheet contributed to the recent bout of weakness, but that’s for another story.

Lingering risks

This isn’t to say Westpac is out of the woods though. There is still a very real and probable prospect of Westpac being hit with the biggest fine in Australian corporate history. That could burn a $1 trillion dollar hole in its balance sheet.

This leaves Westpac exposed to doing another cap raise. The current SPP that closes on 2 December isn’t going so well, particularly given that the stock is trading under the offer price.

Then there is the risk that institutional shareholders who tipped $2 billion into the bank’s placement will sue. The upcoming court case brought by AUSTRAC may expose when the board became aware of the money laundering issue, and if they lived up to their continuous disclosure obligations.

Who ever said investing in Australian big banks was boring!

The post Is the Westpac share price suddenly back in the “buy” zone? appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, and Westpac Banking. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of National Australia Bank Limited. 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. 2019