Morgan Stanley has downgraded Westpac from ‘equal-weight’ to ‘underweight’, saying the bank has the worst revenue outlook of the major banks.
The broker also cut its price target on the stock from $24.60 to $23.60, saying the bank had weak retail bank franchise momentum and declining revenues.
“We downgrade to ‘underweight’ given the worst revenue outlook of the major banks, potential cost disappointment, ongoing AUSTRAC uncertainty, and limited capital and dividend flexibility without valuation support,” said analyst Richard Wiles.
The broker highlighted the possibility of cost disappointment, with Westpac guiding to 1 per cent expense growth in fiscal 2020.
“The response to AUSTRAC means there is potential for compliance costs to exceed initial expectations,” said Mr Wiles.
“Westpac also expects productivity benefits of A$500 million in FY20E, which may prove challenging given the additional distractions. As a result, we think Westpac is the most likely of the majors to disappoint on costs this year, and we now forecast underlying growth ex ‘notable items’ of ~2 per cent.”
The broker also said it was forecasting a 12.5 per cent cut to the half yearly dividend to 70¢.