Stock Market News: WESTPAC BANK (WBC)
IDEA OF THE DAY
WESTPAC BANK (WBC)
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Events are moving fast this morning. I was on air on the ABC as the news broke that Brian Hartzer had resigned. Hardly a surprise given the circumstances. That is now three major bank CEOs to have gone. It seems that the board and management had been talking to major institutional shareholders in the last few days and it became obvious that Hartzer had to go. It was obvious to the rest of us for some days now. Accountability and responsibility. He did manage to get $2.66m as he walked out the door though.
The Chairman is also leaving but not until some time in 2020. That is probably not good enough. It happened on his watch.
Hartzer had his own ‘Prince Andrew Interview’ moment yesterday when he addressed senior bankers and said that it was a non- issue for the average Australian and it was not like Enron or Lehmans. He is right on that but not on the issue for the average man on the Fitzroy tram. Many average Australians are shareholders. To see $8bn in value ripped up hot on the heels of a big rights issue concerns the Average Australian. It should do. What else should concern is the impending class actions under continuous disclosure rules. That will be a lawyer’s picnic.
The black hole that is WBC will swirl for some time now. No reason to be brave. We could see some bargain hunting at some stage maybe even this morning but until WBC is off the front page it will have elevated risks. ASIC has joined the fray and class actions will be another tipping point. Cannot be long.
THE WESTPAC SPP
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Will the SPP be the low point for Westpac (WBC)?
Hartzer has gone. Maxsted is still here. Will that be enough to satisfy the pitch fork yielding masses? I suspect not. At some stage WBC will be oversold and due for a bounce. The gift horse could well be the SPP which is currently under way and under water. The price for the SPP is 2532c. Around a dollar under water. However, the kicker could be the alternative. The SPP will be at the VWAP of the shares traded up to the closing date. Five trading days. Up to and including Monday. So, from today the game is afoot. The sellers will try and get the price down as low as possible for the VWAP. The new stock will be issued at the VWAP minus 2%. So, let us say for argument's sake that the VWAP from Tuesday to Monday next is 2450c. Then SPP will go off at 2401c. At that price the stock is yielding 7.2%. Let us assume that WBC has to cut the dividend again to 80c for both halves, that is 160c fully franked. 6.67%. Still not too shabby compared to bank rates.
Not too shabby, but patience needs to be the watchword at the moment. Whether its right or wrong, the market (media frenzy) wanted a head on a spike to parade around. And they have it. The bloodlust has been quenched for a time. The government wanted a head on a spike given the terrible optics of the ‘child exploitation’ aspect and the legislation hitting the Senate this week to bust the unions. Now unions may do the wrong thing from time to time, but it’s not a good look to punish unions and let the banking sector off scott free. After all, it's not the banks that are suffering, sure the share prices are, but it’s the poor old shareholders who are really footing the bill. Bank of Queensland (BOQ) is the latest to tap shareholders to shore up balance sheet issues. Not sure we will get clear air unless we get that head on a spike.
It is not our business or MO to be sensationalist and try and blow things out of proportion, but it is hard to see a reason to buy WBC just yet even after the CEO has paid with his job and the SPP is over. Next Monday is the final day for pricing and although only a $500m SPP at a 2% discount, there will be some punters trying to manipulate the price lower to pick up cheap stock. There is such a thing as SPP arbitrage. Now I know you can apply for $30,000 worth. But that is for each shareholder. If an individual has multiple shareholdings at multiple brokers, then they will, in theory, get multiple applications. In theory. There were moves to stamp that out, but I am sure some smart traders have worked it out by now.
Clear air will be hard to find for WBC. AMP must be really happy as it gets them off the front page for a long time to come. Maybe that is the one to buy? WBC is hard for new shareholders, you just don’t know how bad things could get. How much the fine will be? How much the class actions will settle for and how long it will take and importantly how much of its business will go elsewhere.
This is a black hole. Hard to value at the moment. In years to come it may be that this is the time to be buying WBC just as the 90s were when they were rescued by AMP. It may pay to wait. I think waiting is a sound policy at the moment. Dust and smoke from that gun take a long time to clear. No hurry.
Will the SPP be the low point for Westpac (WBC)?
Hartzer has gone. Maxsted is still here. Will that be enough to satisfy the pitch fork yielding masses? I suspect not. At some stage WBC will be oversold and due for a bounce. The gift horse could well be the SPP which is currently under way and under water. The price for the SPP is 2532c. Around a dollar under water. However, the kicker could be the alternative. The SPP will be at the VWAP of the shares traded up to the closing date. Five trading days. Up to and including Monday. So, from today the game is afoot. The sellers will try and get the price down as low as possible for the VWAP. The new stock will be issued at the VWAP minus 2%. So, let us say for argument's sake that the VWAP from Tuesday to Monday next is 2450c. Then SPP will go off at 2401c. At that price the stock is yielding 7.2%. Let us assume that WBC has to cut the dividend again to 80c for both halves, that is 160c fully franked. 6.67%. Still not too shabby compared to bank rates.
Not too shabby, but patience needs to be the watchword at the moment. Whether its right or wrong, the market (media frenzy) wanted a head on a spike to parade around. And they have it. The bloodlust has been quenched for a time. The government wanted a head on a spike given the terrible optics of the ‘child exploitation’ aspect and the legislation hitting the Senate this week to bust the unions. Now unions may do the wrong thing from time to time, but it’s not a good look to punish unions and let the banking sector off scott free. After all, it's not the banks that are suffering, sure the share prices are, but it’s the poor old shareholders who are really footing the bill. Bank of Queensland (BOQ) is the latest to tap shareholders to shore up balance sheet issues. Not sure we will get clear air unless we get that head on a spike.
It is not our business or MO to be sensationalist and try and blow things out of proportion, but it is hard to see a reason to buy WBC just yet even after the CEO has paid with his job and the SPP is over. Next Monday is the final day for pricing and although only a $500m SPP at a 2% discount, there will be some punters trying to manipulate the price lower to pick up cheap stock. There is such a thing as SPP arbitrage. Now I know you can apply for $30,000 worth. But that is for each shareholder. If an individual has multiple shareholdings at multiple brokers, then they will, in theory, get multiple applications. In theory. There were moves to stamp that out, but I am sure some smart traders have worked it out by now.
Clear air will be hard to find for WBC. AMP must be really happy as it gets them off the front page for a long time to come. Maybe that is the one to buy? WBC is hard for new shareholders, you just don’t know how bad things could get. How much the fine will be? How much the class actions will settle for and how long it will take and importantly how much of its business will go elsewhere.
This is a black hole. Hard to value at the moment. In years to come it may be that this is the time to be buying WBC just as the 90s were when they were rescued by AMP. It may pay to wait. I think waiting is a sound policy at the moment. Dust and smoke from that gun take a long time to clear. No hurry.