All Eyes on the Four Big Banks

Australia and New Zealand Banking Group Limited

ANZ Details
Decent half year result with boost in digital innovation: Australia and New Zealand Banking Group Limited (ASX: ANZ) has witnessed a rally of 38.8% in last one year (as at May 01, 2017) and has been close to hitting its 52-week high. The stock witnessed a fall of about 2.4% on May 02, 2017 post the release of half year results entailing unaudited cash profit of NZ$928 million, which is up 24%, and unaudited statutory profit of NZ$869 million, up 14% on the corresponding half of FY16. ANZ has boosted its focus on digital innovation and witnessed record high brand consideration and customer satisfaction. The net interest income surged by 3%. Quiet pleasantly, the expenses were reduced by 12%. The customer deposits also increased 7% and gross lending increased 5%. The group’s KiwiSaver business has over 725,000 investors now and the half year funds under management have grown $700 million to almost $10 billion. On the other hand, the earnings have been considered to be below expectations as per the market consensus, and the net interest margin also slipped 6bps at the back of deposit competition and wholesale funding costs.However, run down of risk weighted assets in institutional banking and capital allocation to retail and commercial, helped deliver strong capital outcome.
 

Financial Performance Summary (Source: Company Reports)
 
ANZ had recently entered into an agreement with Shinhan Bank Vietnam with regards to selling its retail business in Vietnam. Under the agreement, all eight branches located in Hanoi and Ho Chi Minh City, and ongoing roles for all retail staff will be taken into consideration. Although subject to regulatory clearances, the transfer of this retail business is expected to get completed by the end of 2017. The bank’s move is on line with its strategy to simplify the operations and focus resources on its largest business in Asia, Institutional Banking. Recently, the bank also announced about redemption all of its $1,509 million ANZ Subordinated Notes (ANZHA) on 20 June 2017, in accordance with the terms of the ANZ Subordinated Notes. Further, the bank has entered into an enforceable undertaking with the Australian Securities and Investments Commission (ASIC) concerning an industry-wide review of Spot Foreign Exchange trading between January 2008 and June 2013, and intends to make a $3 million contribution to Financial Literacy Australia. ANZ has maintained dividends as per expectations and its bad debt charges also settled at 25bps. The bank is set to implement Scaled Agile approach for enhancing customer experience. Looking at the trading scenario, we recommend a “Hold” at the current price of $ 32.25


ANZ Daily Chart (Source: Thomson Reuters) 

Westpac Banking Corporation

WBC Details
Prevailing uncertainty: This year marked the completion of Westpac Banking Corporation’s (ASX: WBC) 200 years of support to Australia and the bank is now set to announce its Half Year Results on May 08, 2017. The bank has lately affirmed that Wealth (BT Financial Group (BTFG)) remains a strategic priority, and accordingly, the bank intends to further invest in the business for more growth. It has been highlighted that industry is under some pressure owing to near term headwinds from volatility and the uncertainty and costs associated with regulatory change. However, drivers such as growth in superannuation balances (assets doubling to $4 trillion over the next nine years), robust policy framework, boost from the BT Panorama platform, and so forth, are expected to enhance the performance.
 

ROE for BT Financial Group (Source: Company Reports)
 
On the other hand, the bank has expressed to witness an uneven growth pattern across States while the global environment is volatile. Growth in the services sector, a rise in residential and infrastructure investment and improved net exports have found support till date from low level of the Australian dollar and low interest rates. However, effects from the slowdown in mining investment has impacted the upside. WBC expects these headwinds to continue in the year ahead. Thus, similar system lending and deposit activity in 2017 will be a prominent part of the outcome as in 2016. In year 2016, WBC witnessed flat cash earnings at $7.8 billion, while statutory net profit at $7.4 billion was lower year-on-year. Given the downside risk and the stock trading at high levels, we believe that the stock is “Expensive” at the current price of $ 34.98


WBC Daily Chart (Source: Thomson Reuters) 

Commonwealth Bank of Australia

CBA Details
 
Appealing returns to shareholders: Commonwealth Bank of Australia (ASX: CBA) had reported for half year 2017 cash net profit after tax (NPAT) of $4,907 million and an interim dividend of $1.99 per share. The group had invested a further $600 million during the half period.CBA had returned 76.5% of the bank’s cash profits ($7.2 billion) to its shareholders as dividends during last financial year. The first half 2017 returns were of the order of $3.4 billion.
 

Half-year Result Highlights (Source: Company Reports)
 
CBA had increased its interest rates on mortgages recently given the US interest rate scenario. There can be some boost coming in, if interest rate go up higher. At the same time, house prices may play an important role in impacting the performance. Commonwealth Bank of Australia expects to release its March Quarter 2017 Trading Update on May 09, 2017. The stock has moved up about 20.9% in last one year (as at May 01, 2017) and is now trading at higher levels. There is some potential for profit growth, but the stock already looks “Overvalued” at the current market price of $ 86.83


CBA Daily Chart (Source: Thomson Reuters) 

National Australia Bank Limited

NAB Details
Decline in the charge for bad and doubtful debts: National Australia Bank Limited (ASX: NAB) had recently redeemed all outstanding NAB Subordinated Notes (NSN) in accordance with their terms, as issued by NAB in 2012 ($633,692,300 of NSN (representing 6,336,923 NSN at $100 each) is currently outstanding). In the first quarter trading update for 2017, NAB had reported for unaudited cash earnings of $1.6 billion, which was about 1% lower than the quarterly average of the September 2016 half year result and 1% lower than the prior corresponding period. The statutory unaudited net profit attributable to the owners of the Company for the December quarter was approximately $1.6 billion, while revenue surged up 1% on a cash earnings basis, owing to improved growth in lending and higher trading income. While the expenses had risen, the charge for bad and doubtful debts for the quarter declined 23% to $164 million at the back of non-repeat of the increase in the collective provision overlay for mining, mining related and agricultural sectors in the September 2016 half year. NAB had changed its organisational structure along with Executive Leadership team effective from 1 August 2016, and thus the reporting to align to customer segments. At the moment, there are three new Australian reportable segments, namely, Business & Private Banking for specialised Agriculture, Health, Government, Education and Community services along with Private Banking and JB Were, and small business; Consumer Banking & Wealth Management for the NAB Consumer Banking network; and Corporate & Institutional Banking for Corporate and Institutional customers, Capital Financing and Asset Servicing businesses, and International Branches. 2017 half year results are due on May 04, 2017. Earnings support might be coming in from mortgage repricing and credit growth. NAB stock has witnessed a rally of 28% in last one year (as at May 01, 2017) and is hitting its 52-week high. We give a “Hold” recommendation at the current price of $ 34.01


NAB Daily Chart (Source: Thomson Reuters)

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