Westpac Banking Corp (ASX: WBC) shares have failed to outperform the broader market this year. Crawling back from its 52-week high in November 2022, the Aussie banking major has descended 3.5% to $21.95 in 2023.
Surprisingly, the underwhelming performance has played out despite the bank delivering a 22% increase in half-year net profits after tax (NPAT) earlier this year. Rising interest rates have beefed up the bank’s all-important net interest margin (NIM), but it’s also sapped credit demand from the market.
The banking sector is now fiercely competitive as each bank tries to maintain its catch rate in a pond with fewer fish.
Now undertaking a restructure, could this be just what’s needed to stay competitive? More importantly, are Westpac shares now offering compelling upside?
Going for growth
Yesterday, the third-largest of the big four Aussie banks announced plans to restructure itself to ‘drive growth’. Investors responded positively to the news, nudging the Westpac share price up 0.27% compared to the flat finish for the S&P/ASX 200 Index (ASX: XJO).
Westpac will split up its consumer and business banking division as part of the restructuring.
What newer shareholders may not know is this is not the first time. Seven years ago, Brian Hartzer (Westpac’s CEO at the time) made the call to break apart consumer and business. Having served as chief financial officer back then, Peter King — now CEO — is returning to the ‘good old days’.
However, this move might appear peculiar given King opted to bring the two together around two years ago. The CEO’s decision will mean Westpac’s structure will more closely resemble its peers.
Notably, the move to position the bank for growth is diametrically opposed to recent developments elsewhere, both locally and abroad.
This week we’ve seen Telstra Corporation Ltd (ASX: TLS) and Lendlease Group (ASX: LLC) outline considerable layoffs in a bid to slim down expenses. Furthermore, yesterday, the Australian Financial Review highlighted more than US$1 billion in severance costs across the big US banks during the first half of the year.
What do analysts think of Westpac shares?
At face value, the sentiment shared by King appears positive for Westpac. Though, not everyone holds an optimistic outlook for the banking sector.
Analysts at Macquarie are taking a neutral stance on banks broadly. According to a note, the team sees “limited scope for banks to re-rate from current levels”, wary of credit issues arising from an economic slowdown.
However, Macquarie named Westpac shares as second in their order of preference — pipped by National Australia Bank Ltd (ASX: NAB).
Comparing price-to-earnings (P/E) ratios, Westpac is currently the second most highly valued of the big four at 12.6 times earnings. The most expensive is the Commonwealth Bank of Australia (ASX: CBA), with its 18.1 times earnings multiple.
