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Why Shares of Westpac Banking Corp Are Falling This Week

By Bram Berkowitz – Nov 4, 2021 at 6:00PM

Key Points

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The Australian bank reported earnings results earlier this week.

What happened

Shares of the Australian bank Westpac Banking Corp (WBK) had fallen nearly 13% on the week, as of market close Thursday. Shares dropped after the bank reported earnings for the 12 months ending Sept. 30.

So what

Westpac reported a profit equivalent to nearly $4.1 billion for fiscal year 2021, up more than 130% from fiscal year 2020. But on a core basis, earnings were down. The higher earnings are mostly a result of releasing reserve capital (previously set aside for loan losses) back into earnings, which boosted profits.

The net interest margin fell on a year-over-year basis. Net interest margin is essentially the difference between what banks make on interest-earning assets, such as loans, and payout on interest-bearing liabilities, such as deposits.

"Our underlying results are not where we want them to be, and we recognize we have more to do to become the high-performing company we aspire to be," Westpac Group CEO Peter King said in a statement.

Arrow moving upward on blue stock chart.

Image source: Getty Images.

Now what

Westpac is in the midst of a transition after dealing with regulatory issues last year. This has involved investing back into the business, which led to elevated expenses in fiscal year 2021. Management has a plan to reduce expenses significantly at the bank, but they seem a long way off from the target, so investors may be taking a show-me approach right now.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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