Westpac (ASX: WBC) shares are down 42% since the share market started dropped in February 2020. Are Westpac shares too cheap to ignore?
What is Westpac?
Westpac is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business.
Westpac’s COVID-19 pain
As a bank, Westpac is in the industry that’s expected to take on broad pain through the turmoil of the economy. That’s one of the reasons why banks trade at a cheap valuation during good times. And CBA (ASX: CBA) just announced a large provision for COVID-19.
The FY20 half year result wasn’t easy reading for shareholders. The major bank said that its cash earnings fell 70% to $993 million. Excluding notable items, like the AUSTRAC penalty provision, profit was still down 44% to $2.28 billion. Statutory net profit was down by 62% to $1.19 billion.
Westpac included an impairment charge of $2.24 billion, which was up $1.9 billion including the potential impacts of COVID-19.
If the bank does suffer that much pain then that’s a lot of money that’s been burned due to the situation.
Is the Westpac share price a buy?
Westpac’s share price is close to the worst point of the GFC. Things don’t seem that bad yet, but COVID-19 could be worse for the bank than the GFC was.
It may come down to how optimistic you are. Perhaps Westpac has been oversold if the situation will get better sooner than expected. The decline may end up being fair. Or things could get even worse than currently priced in. No-one knows.
Westpac may be too risky today, it may be a better bet to go for ASX growth shares.
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
