---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 156653
conversation_id: 5f64718e-1c29-4c62-ac8e-e74497b7e9c9
citations: 13
created: 2026-05-31 20:58:18Z
---

# What’s the bull case bear case for Westpac?

# Westpac (WBC AU) — Bull Case / Bear Case

CLSA rates **Westpac UNDERPERFORM (U-PF)** with a target price of **A$27.50** vs. last price of A$33.21 — implying **~17% downside** [1]. Within the Australian majors, CLSA's order of preference is ANZ > NAB > Westpac > CBA, with WBC ranked third [2]. Below is the synthesized bull/bear framework drawing on the latest CLSA sector note (20-Jun-2025) and Westpac's own 1H26 results commentary.

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## Bull Case

### 1. Improving franchise momentum and proprietary channel mix
- Business banking lending grew **+13% YoY**, with double-digit growth in target sectors (agriculture, health, professional services); proprietary lending now ~60% of new originations in business [8].
- Institutional balance sheet grew **+23%**, with strong activity in energy transition, infrastructure, critical minerals, data centres, and renewables (renewable balances +16%) [8].
- Westpac is **shifting more towards business lending**, which CLSA views as a structural positive for mix [6].

### 2. Mortgage franchise turning the corner
- Australian mortgages grew **slightly above system at 4%**, reflecting execution of the mortgage strategy and a strong spring campaign with higher proprietary flow [9].
- WBC will see **near-term margin tailwinds** from Bills/OIS, rate lag benefits, and deposit pricing benefits [3].

### 3. Capital flexibility and shareholder returns
- WBC has **~A$2.7 billion of capital above its CET1 target** (post-dividend), with payout ratio of 75.6% slightly above the 65–75% target range [11].
- **A$1 billion buyback outstanding** — provides ongoing share-price support [11]. CLSA flags that WBC also has ~A$1.1bn remaining in the current buyback to help support the share price [3].
- Capital tailwinds expected from RWA optimisation, capital floor reduction, and the eventual reversal of both the **A$500m APRA capital add-on** and the 23bps replicating portfolio duration adjustment [3].
- Despite earnings headwinds, CLSA believes **WBC can maintain the dividend at 76c** (temporarily above the target payout range) [3].

### 4. Upside risk levers (per CLSA)
- **NIM improvement** through easing competition;
- **Credit growth strengthening**;
- **Loan losses continuing to track well below historical averages** [5].

### 5. Cyclical asset-quality strength
- 90-day+ mortgage arrears improved to **57 bps**; stressed exposures down 12 bps; business customers managing conditions well [10].
- CEO Anthony Miller is well-liked by the market, and the share price has performed well to date [3].

---

## Bear Case

### 1. Lack of replicating portfolio tailwind (FY26 headwind vs. peers)
- WBC's hedge has shorter duration, so unlike peers, **FY26 lacks the replicating-portfolio benefit** that ANZ, NAB and CBA enjoy. CLSA calls this a "material headwind relative to peers" [6].
- Management confirmed this on the call: only **2 bps benefit** from replicating portfolio in 2H26, and just **3 bps in 2027** — well below peers [12].

### 2. Sector-wide earnings headwinds
- More **RBA rate cuts** likely to pressure bank earnings; buyback pace slowing across the sector; tail risk of rotation toward resources [2].
- For WBC specifically: **rate-cut cycle + competition + mix impacts** all weigh on margins [3].

### 3. Cost growth and transformation drag
- CLSA expects **cost growth to step up to ~4% in 2H25**, driven by amortisation, +A$70–110m investment spend, and salary annualisation [3].
- **Project Unite** benefits are positive, but **material benefits won't flow until FY28–29** — investment drag persists in the interim [3].
- WBC's **cost-to-income is 4.5 percentage points ABOVE peers** and **ROTE is 1.8 points BELOW peers**, by management's own admission — closing this gap is multi-year [13].

### 4. Below-system mortgage history (RAMS overhang)
- CLSA notes that WBC had been **growing below system in mortgages** as RAMS continued to run down [3]. (The 1H26 result showed an improvement, but the structural drag is fresh.)

### 5. Macro / asset-quality risk building
- Westpac is now expecting a **more pronounced slowdown** in the Australian economy on energy-supply-driven inflation, with a **new portfolio overlay for energy-intensive sectors** [7].
- **Credit provisions rose A$212m to ~A$5.2bn**, taking total provisions to **A$1.9bn above the base case** — sensitivity to a one-notch downgrade in energy-intensive sectors would lift RWAs ~A$4bn (≈11 bps CET1) [10].
- CLSA's standard downside-risk template applies: margin pressure, elevated loan losses or — worse — a recession putting pressure on the dividend.

### 6. Valuation looks stretched
- CLSA's price target uses **target P/B of 1.3x** (vs. LT average 1.8x) and **target P/E of 14x** (vs. LT average 12.7x) — the multiples are full at current levels [4].
- After a strong run, "given the returns, likely earnings headwinds over the next year, **we believe it looks over valued in the near term**" [3].

---

## CLSA Headline Valuation Snapshot

| Metric | Value |
|---|---|
| Recommendation | **Underperform (U-PF)** [1] |
| Price | A$33.21 [1] |
| Target Price | A$27.50 [1] |
| Implied up/downside | **-17.2%** [1] |
| Order of preference (majors) | ANZ > NAB > **WBC** > CBA [2] |

---

## Bottom Line
The bull case rests on **improving franchise execution** (business / institutional growth, return of mortgages to ~system, capital returns) and **cyclical asset-quality strength**. The bear case — and CLSA's house view — is that **FY26 earnings will lag peers** because (i) WBC uniquely lacks the replicating-portfolio tailwind, (ii) cost growth is stepping up while Unite benefits don't arrive until FY28–29, (iii) macro headwinds are forcing higher overlays for energy-intensive sectors, and (iv) the multiple is already full after a strong run. Net: CLSA sees ~17% downside to fair value despite an A$1bn buyback floor.

---
**Sources**
[1], [2], [3], [4], [5], [6] CLSA — "Australian banks (ANZ the one to watch)" — 20 Jun 2025 — 607962478LinqAlpha.PDF
[7], [8], [9], [10], [11], [12], [13] Westpac Banking Corp., Q2 2026 Earnings Call, 4 May 2026

## Citations

- [1] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [2] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [3] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [4] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.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] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [8] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [9] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [10] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [11] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [12] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external
- [13] **Westpac Banking Corp., Q2 2026 Earnings Call, 4-May-2026 8** · external

