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Highlights

  • ANZ shares rose 1.1% to AU$29.07, in line with a broader market uptick.

  • Morgan Stanley lowered its price target to AU$26.50, citing earnings peak in ANZ’s institutional division.

  • The brokerage flagged concerns over future earnings growth, capital usage, and dividend confidence.

Shares of Australia and New Zealand Banking Group Ltd (ASX:ANZ) climbed 1.1% to close at AU$29.07 on Tuesday, mirroring gains across the broader Australian equity market. The rise comes even as Morgan Stanley revised its outlook for the banking group, cutting its price target from AU$27.50 to AU$26.50 while retaining an "equal-weight" rating.

In its latest research note, the brokerage firm highlighted weakening earnings prospects for ANZ’s institutional banking division, which contributes approximately 40% of the group’s overall profit. According to Morgan Stanley, the earnings of the institutional arm have already peaked, with a projected decline of around 15% between FY2024 and FY2026.

The firm pointed to several headwinds impacting future earnings, including increased competition, lower interest rates, and modest volume growth. Additionally, deteriorating credit quality and low incremental capital usage are expected to weigh on the bank’s performance over the medium term.

Despite the bank’s recent market performance, Morgan Stanley expressed a muted outlook for earnings growth, citing reduced confidence in capital returns and dividend payouts. As a result, the brokerage revised down its cash earnings per share (EPS) estimates by approximately 2% to 3% for FY2026 and FY2027.

Market sentiment toward ANZ remains mixed. Based on data compiled by LSEG (London Stock Exchange Group), the stock carries a “hold” rating on average, with a median price target of AU$28. As of year-to-date, ANZ shares have posted a modest gain of 1.8%.