Since the government announced plans for a Royal Commission into the banking and financial services sector the Westpac Banking Corp (ASX: WBC) share price has come under pressure and sunk notably lower.
Should you buy shares?
Providing the banks come out of the Royal Commission unscathed and Westpac’s annual general meeting doesn’t throw up any surprises on Friday, then I think it would be a great addition at the current share price.
At present Westpac’s shares change hands at a little over 13x trailing earnings and 1.7x book value.
I feel this is about fair for a bank of its quality and providing a trailing fully franked 6.1% dividend.
What about the bank levy?
Despite the bank levy putting pressure on their bottom lines and dividends, I believe the banks will overcome this through out of cycle rate rises.
Westpac is arguably best-positioned of the group to benefit from the re-pricing of its investor loans.
Furthermore, I feel it is well on its way to achieving APRA’s unquestionably strong capital benchmark and won’t have to make sacrifices in order to meet it.
In light of this, I would suggest that investors choose Westpac ahead of rivals Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) and aim to buy below $31 and then ride the share price back to the mid-$30s again next year.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Bruce Jackson.