Should you buy the top banking stocks?

 
Australia and New Zealand Banking Group 


ANZ Details
 
Focus on core operations:Australia and New Zealand Banking Group (ASX: ANZ) is considering to sell its life insurance business as per a Reuters report while the market is valuing this deal at over $4 billion. This deal would help the bank to raise cash without approaching the shareholders to maintain its capital adequacy ratio (CAR), which would further enable bank to focus on its core banking operation. The life and general insurance business is a low margin and competitive one and given the Australian dollar condition, overseas insurance giants are looking to acquire this business. Meanwhile, ANZ has declared its half yearly result for period ended March 2016 with cash profit falling by 24% to $2.78 billion on flat growth in revenues of $10.26 billion. There is also a decline in interim dividend by 7% as the bank declared the same as 80 cents per share. The return on equity fell from 14.5% to 9.7% while credit impairment charges increased from $494 jumped to $904 million. But, the management says it is in the period of consolidation, simplification and transition to adopt the changing environment and also to provide conservative and sustainable approach for the future. The management has also guided that the final dividend is expected to be at least the same as an interim dividend. The Group has accounted $717 million in charges to reposition the group for stronger profit before provisions growth in the future. The Bank is issuing US$1.5 billion fixed rate subordinated notes in pursuant to its US$25 billion 144A debt program. We expect the focus on core business and efforts for future growth to be paid off in near future.  The Bank has gained 7.37% in past one month (as of May 31, 2016) and is trading at an attractive P/E and dividend yield. We maintain our “Buy” rating on the stock at the current price of $24.93
 

ANZ Daily Chart (Source: Thomson Reuters)
 
National Australia Bank


NAB Details
 
Net interest margin rose first time after 2011: National Australia Bank Ltd (ASX: NAB) on May 31, 2016 has an announced for NAB Capital Notes 2 offer with prospectus lodged with ASIC wherein NAB intends to raise $750 million with the ability to raise more or less. NAB On 31 May 2016, NAB announced an offer of NAB Capital Notes 2 (Offer). The Offer is made under the prospectus lodged with the Australian Securities and Investments Commission on 31 May 2016 (Prospectus). A copy of the Prospectus is available to download on this website. NAB intends to raise $750 million under the Offer, with the ability to raise more or less. On 31 May 2016, NAB announced an offer of NAB Capital Notes 2 (Offer). The Offer is made under the prospectus lodged with the Australian Securities and Investments Commission on 31 May 2016 (Prospectus). A copy of the Prospectus is available to download on this website. NAB intends to raise $750 million under the Offer, with the ability to raise more or less. On 31 May 2016, NAB announced an offer of NAB Capital Notes 2 (Offer). The Offer is made under the prospectus lodged with the Australian Securities and Investments Commission on 31 May 2016 (Prospectus). A copy of the Prospectus is available to download on this website. NAB intends to raise $750 million under the Offer, with the ability to raise more or less.also reported 6.5% rise in cash profit to $3.31 billion and surprised market by reporting rise in net interest margin for the half year ended March 2016.For the first time since 2011, the net interest margin rose to 1.93 % from 1.88 % in September. The company has spun off the UK business and registered a net loss of $1.74 billion. The bank has decreased charges for bad and doubtful debts by 6% on secured loans. On the other hand, NAB set aside $375 million for bad loans, this helped to improve net margin but may impact future earnings. Recently the NAB sold 80% of its life insurance business to Japanese insurance operator Nippon Life in a deal valued at around $2.4 billion to focus on Australian and New Zealand lending. For half year ended on March 2016, the lender’s Australian banking cash profit climbed 5% to A$2.69 billion, while the New Zealand unit’s earnings dropped 3.3%. But, profit at the wealth management division rose 11.7%.
 

Australian and New Zealand Performance (Source: Company Reports)
 
Pursuant to the US$100 billion global medium term note program, the bank is issuing SG$450 million subordinated notes due 2028 and HK$1137,000,000 subordinated notes due 2026. Given, the rise in cash profit and improvement in net interest margin the stock rallied over 6.26% in the last three months (as of May 31, 2016). Having a strong dividend yield, we maintain our “Buy” rating on the stock at the current price of $26.41
 

NAB Daily Chart (Source: Thomson Reuters)
 
Commonwealth Bank of Australia


CBA Details
 
Pressure on margins: CommonwealthBank of Australia (ASX: CBA) posted unaudited cash earnings over the third quarter ended on March 31, 2016 which were approximately $2.3 billion. This was slightly ahead of the $2.2 billion the bank earned in the third quarter of last year. Bank’s loan impairment expense was higher in the quarter at $427 million, or 25 basis points of gross loans and acceptances, up from $256 million a year earlier. Home loan arrears remained low. However, areas of Western Australia and Queensland continue to be impacted by the mining downturn. The Group net interest margin was largely unchanged from the first half of 2016, when it reported a margin of 2.06 %. Meanwhile according to data released from Australian Prudential Regulation Authority, the bank is facing pressure on its market share while losing it to Australia & New Zealand Banking Group Ltd.Furthermore, the rising bad debt charges, pressure on margins as well as stricter capital rules are posing pressure over growth outlook. Based on the foregoing, we give an “Expensive” recommendation on CBA at the current market price of $76.08
 

CBA Daily Chart (Source: Thomson Reuters)
 
Westpac Banking Corp 


WBC Details
 
Regulation pressure to hurt the stock: Recently, Australia’s securities regulator has started civil legal proceedings against Westpac Banking Corporation (ASX: WBC) for allegedly manipulating one of the nation’s benchmark interest rates. Moreover, Westpac has flagged higher debt provisions because of bad consumer loans in Western Australia and Queensland on the back of the resources industry downturn. For the first half year ended March 2016, the bank reported a 3% rise in cash earnings to $3.9 billion. Impairment charges were $667 million as compared with $412 million in September quarter.
 

Impairment Charges (Source: Company Reports)
 
The bank declared interim dividend of 94 cents. WBC announced about letters being sent to holders of Westpac Trust Preferred Securities notifying holders as to their eligibility to participate in the Westpac Capital Notes 4 Reinvestment Offer. Given the tough environment to the group, we believe the stock is “Expensive” at the current market price of  $30.10
 

WBC Daily Chart (Source: Thomson Reuters)

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