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Why the Westpac share price is sinking lower on Friday

James Mickleboro

In afternoon trade the solid run of the Westpac Banking Corp (ASX: WBC) share price looks like it is coming to an end.

At the time of writing the banking giant’s shares are down 0.6% to $25.70, reducing their year to date gain to approximately 4.9%.

Why is the Westpac share price trading lower today?

While the market as whole is struggling today, Westpac’s shares were given a knock this morning following the release of a broker note out of Goldman Sachs.

As I mentioned here earlier, this morning Goldman Sachs upgraded the shares of rival National Australia Bank Ltd (ASX: NAB) to a buy rating from neutral.

Unfortunately for Westpac, the broker did the opposite to its shares and downgraded them to a neutral rating from a buy rating.

In addition to this, the broker slashed the price target on its shares by 9.4% to $29.73.

Why was Westpac downgraded?

Goldman downgraded Westpac largely due to it being the most exposed bank to the housing market.

The broker believes that business lending will outperform home lending this year for the first time since 2011. As a result, it expects the banks with the most exposure to business lending to outperform.

This is why it upgraded NAB’s shares this morning and why Australia and New Zealand Banking Group (ASX: ANZ) is on its conviction buy list and remains the broker’s preferred bank to invest in.

In addition to this, the cut to its price target means that the potential upside for its shares stood at 15% prior to today. While this is still a decent potential return, it isn’t as great as the potential returns on offer from the shares of ANZ Bank and NAB.

One final reason for the downgrade was the bank’s decision, at this stage, to remain committed to its wealth business. While the broker notes that Westpac has come out of the Royal Commission less adversely impacted than its peers, it is concerned that there is greater remediation risk for wealth management in the future. This could leave Westpac exposed to this risk.

Should you invest?

While I do agree with Goldman on all its points, I still see Westpac as a buy at these levels and feel the potential return on offer with its shares remain compelling.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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.