---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 185339
conversation_id: bf0d0315-c41a-44b6-aca8-1c6fdbe34bcc
citations: 10
created: 2026-05-31 21:00:08Z
---

# Is CLSA incrementally more positive/negative on Westpac. If so, why?

**Yes — CLSA has become incrementally MORE NEGATIVE on Westpac (WBC AU)**, with two successive rating cuts over the past year. The most recent action was a downgrade from **Hold → Underperform** on **5 May 2025** following 1H25 results, and the call has been reaffirmed in CLSA's latest sector note dated **20 June 2025**.

---

## 1. CLSA Rating Trajectory on WBC — Direction of Travel

| Date | Document | Rating | Target Price |
|---|---|---|---|
| 27 Mar 2024 | Westpac – O-PF ("About time") | **Outperform** | n/a |
| 6 May 2024 | Westpac – O-PF ("Solid performance and capital mgmt") | **Outperform** | n/a |
| 19 Aug 2024 | Westpac – HLD ("Good qtr but it's getting tougher") | **Hold (downgrade)** | n/a |
| 9 Sep 2024 – 17 Feb 2025 | Series of HLD notes ("Different but same, same" / "Improving trends, challenges remain" / "Solid margin but benefits easing" / "Underlying result roughly in line") | **Hold** | n/a |
| 28 Mar 2025 | Westpac – HLD ("United") | **Hold** | A$29.80 (raised from A$29.10) |
| **5 May 2025** | **Westpac – U-PF ("Margin headwinds")** | **Underperform (downgrade)** | **A$27.50 (cut from A$29.80)** [1][9] |
| 20 Jun 2025 | Australian banks ("ANZ the one to watch") | **U-PF reaffirmed** | A$27.50 (Up/downside −17.2%) [5] |

The arc is unambiguous: **Outperform (early 2024) → Hold (mid-2024) → Underperform (May 2025)**. CLSA also ranks WBC **third out of the Big Four** in its 12-month order of preference (ANZ > NAB > Westpac > CBA), within an Underweight sector stance [5][6].

---

## 2. Why CLSA Downgraded — Five Specific Headwinds

### a) 1H25 result missed, EPS forecasts cut
1H25 underlying NPAT missed expectations despite a lower-than-expected loan-loss charge, with **weaker underlying margin and softer trading income (incl. a −A$19m DVA)**. CLSA cut FY25/26 EPS by **−4% / −6%**, and the published forecast table shows Cash NPAT ex-notables revised down **−3.7% / −5.7% / −6.0% in FY25/26/27** [1][4][8].

### b) Margin headwinds — the core thesis
Exit margin in March was **1.79%, 1bp lower** than the 1H25 average of 1.80%. CLSA flags that WBC faces the rate-cut cycle combined with competition and mix effects, and — critically — **does not have the replicating portfolio tailwinds that peers enjoy in FY26, a "material headwind relative to peers"** (WBC's hedge has shorter duration) [2][6][7]. This single structural disadvantage is repeated in both the May downgrade note and the June sector note.

### c) Below-system mortgage growth
WBC has been growing **below system in mortgages as RAMS continues to run down** — a top-line drag that compounds the margin pressure [6].

### d) Cost growth accelerating to ~4%
Cost growth was +2.7% on 2H24 in 1H25 but is set to **accelerate to ~4% in 2H25**, driven by **increased amortisation, investment spend of +A$70–110m, and annualisation of salary increases** [3][6].

### e) Project Unite — benefits too far away
CLSA acknowledges Unite is a positive long-term lever, but notes **material benefits will not flow through until FY28–29**, while the investment spend itself is a near-term cost drag — meaning the structural cost story does not help the FY26 P&L [3][6].

---

## 3. Resulting Financial Model — What CLSA Now Forecasts

From CLSA's revised model (May 2025):

| A$m, FYE 30 Sep | FY24A | FY25CL | FY26CL | FY27CL |
|---|---|---|---|---|
| Net profit | 7,113 | 6,768 | 6,484 | 6,605 |
| EPS (A¢) | 204.3 | 197.8 | 191.4 | 196.3 |
| EPS growth | (2.7%) | **(3.2%)** | **(3.2%)** | 2.6% |
| ROE | 9.8% | 9.4% | **8.9%** | 9.0% |
| Cost/income | 50.3% | 52.6% | **53.9%** | 53.7% |
| DPS (A¢) | 151.0 | 152.0 | 152.0 | 152.0 |

[8] — three consecutive years of declining/flat earnings, a deteriorating ROE, and a rising cost-to-income ratio frame the bearish case.

---

## 4. Valuation Call — Why TP A$27.50 Implies Downside

CLSA's target is the midpoint of PB and PE valuations using **1.3x PB (vs LT average 1.8x) and 14x PE (vs LT average 12.7x)**. The −15% potential downside at the time of downgrade [9] is now larger: at the 20 June sector update, WBC was priced at A$33.21 vs target A$27.50, implying **−17.2% downside** — the most negative of the Big Four [5].

---

## 5. What Could Make CLSA Less Negative (the bull case CLSA acknowledges)
Upside risks CLSA itself flags: **NIM improvement via easing competition, stronger credit growth, and loan losses continuing to track well below historical averages** [10]. There is also a near-term tactical positive — CLSA expects **3Q25 margin tailwinds** from Bills/OIS and rate-lag benefits, plus deposit pricing benefits, and the **A$1.1bn remaining buyback** is share-price supportive [6]. But CLSA's view is that the FY26 replicating-portfolio gap and cost build leave the structural call intact.

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## Bottom Line

CLSA's stance on Westpac is **incrementally more negative** — downgraded twice in 12 months (O-PF → HLD → U-PF), with a target-price cut from A$29.80 to A$27.50 and EPS estimates cut high-single-digits across FY25–27. The thesis hinges on **structural margin disadvantage vs peers (no FY26 replicating portfolio tailwind), accelerating cost growth in 2H25, below-system mortgage growth, and Project Unite benefits being too far out (FY28–29) to support near-term earnings**. WBC is third in CLSA's Big Four pecking order, behind ANZ and NAB.

---
**Sources**
[1] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — 607957983LinqAlpha.PDF (downgrade text)
[2] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — revenue/replicating-portfolio chunk
[3] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — cost growth & Unite timing
[4] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — forecast changes table
[5] Australian banks (ANZ the one to watch) — CLSA, 20 Jun 2025 — 607962478LinqAlpha.PDF — WBC rec/TP table
[6] Australian banks (ANZ the one to watch) — CLSA, 20 Jun 2025 — WBC Underperform bull/bear case
[7] Australian banks (ANZ the one to watch) — CLSA, 20 Jun 2025 — WBC investment thesis
[8] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — full financial forecast table
[9] Westpac – U-PF (Margin headwinds) — CLSA, 5 May 2025 — price/target/potential table (A$27.50; −15%)
[10] Australian banks (ANZ the one to watch) — CLSA, 20 Jun 2025 — valuation methodology

## Citations

- [1] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [2] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [3] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [4] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [5] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [6] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [7] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [8] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [9] **607957983LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957983LinqAlpha.PDF>
- [10] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>

