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Westpac NZ shares catch up their big brothers

Friday 18th July 2003

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Have the Australian banks run out of steam? After a run of nearly 40% since February, Westpac New Zealand class shares, which track the bank's head shares, last week eased around 5%.

The other big banks' share prices have moved in much the same way. Sharebrokers attributed last week's falls to investors taking their profits from the banking sector and ploughing the money into internationally exposed resource stocks to position themselves to benefit from "the global recovery."

Certainly the banks had a superb year in 2002. Westpac's net profit was up 15% to $A2.19 billion ($2.46 billion).

There are also signs the growth rate is slowing down. In Westpac's case, March first-half profit was $A1.05 billion ($1.17 billion), up a mere 10%.

The "big four" banks have clocked up double-digit profit growth for some years now but analysts question whether this is sustainable when the economy is growing at only 3-4%.

Like ANZ, Westpac has bet heavily on wealth management (funds management and superannuation) as a future profit driver.

Some investors will have made money on buying the New Zealand class shares regardless of share price movements. The shares, issued in late 1999 to build up a local shareholding base by allowing investors to get dividend imputation credits, have traded at a discount of up to 20% on the price of the Australian head shares.

The discount was blamed on the relative lack of liquidity. There are only about 53 million local class shares, against Westpac's 1.8 billion head shares.

Westpac has been working on getting the head shares and the New Zealand class shares made fully "fungible" (exchangeable) but is bogged down in complicated Australian tax regulations.

Nonetheless the discount has narrowed considerably, to 10% 18 months ago and just over 5% recently.

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