On March 07, 2018, the big 4 banks were edging lower impacted by the weakness in the stock markets across the globe post the resignation of White House economic adviser, Gary Cohn. Further, the concerns over property market scenario along with credit growth softness have been playing a role while Banking Royal Commission has already changed the banking sector landscape a bit. Amidst the scenario, a few of the majors still have the potential to demonstrate momentum in the long term.

 
National Australia Bank Limited (ASX: NAB) 

NAB Details

Maintains a strong capital position: National Australia Bank reported 3% growth in cash earnings in 1Q18 over 1Q17 and is on track with regards to its cost saving target of over $1 billion by end of FY20. The group’s priority segments Net Promoter Score has improved from -12 in September to -8 in December. While APRA (Australian Prudential Regulatory Authority) had proposed a minimum leverage ratio requirement of 4% for Internal Rating based ADIs, NAB’s leverage ratio was 5.4% as at 31 December 2017. NAB’s Common Equity Tier 1 (CET1) capital ratio of 10.2% as at 31 December 17 was consistent with NAB Group’s objective of maintaining a strong capital position.
 

Capital Ratio Performance (Source: Company Reports)
 
A strong balance sheet enables NAB Group to respond to the changing market and regulatory conditions. There has been a speculation that it is going to spin-off its funds management business into a separate listed entity. The share price has climbed up by 6.29% in the past one month, as at March 06, 2018 and slipped by 1.3% on March 07, 2018. By looking at the overall performance, we give a “Buy” recommendation at the current market price of $29.70
 

NAB Daily Chart (Source: Thomson Reuters)
 

Australia and New Zealand Banking Group Limited (ASX: ANZ)

ANZ Details

Funding and liquidity position remains strong:ANZ’s Common Equity Ratio also increased to 10.82% as at December 2017 from September by about 25bp. The group has also finalised the sale of its previously announced six retail and wealth businesses in Asia, allowing it to further focus on institutional and large corporate customers moving goods and capital across the region. The Company has successfully transferred its retail and wealth businesses in Indonesia, China, HK, Taiwan and Singapore to DBS Bank while sale of its retail business in Vietnam was finalised for transfer to Shinhan Bank at the end of 2017. As of now, the group has not specified the exact number of shares for the buy-back program, but it will require shares corresponding to about $771,859,225 of an amount. The Group disclosed to ASX that Sir John Phillip Key, appointed in February 2018 had no relevant interest in the securities, and had issued 2,918,660,818 fully paid ordinary shares as on 1 March 2018. Recently, ANZ’s NZ Branch entered into an agreement to sell its 25% of shareholding in Paymark Limited to Ingenico Group for NZ$47.5. The carrying amount of the Banking Group’s investment in Paymark at 31 December 2017 was NZ$7 million. The Bank holds a diversified portfolio of cash and high quality of liquid securities to support liquidity in risk management.
 

Leverage Ratio Trend (Source: Company Reports)
 
The Bank has the potential to extend their capital return program in 2018. Few weeks ago, ANZ was informed by the New Zealand Overseas Investment Office that HNA Group’s application to acquire UDC Finance has been declined, but this termination of the agreement comes by way of no surprise as UDC’s transaction proceeds would be only equivalent to around 10 basis points of APRA CET1 capital. Looking at the credit quality and bank’s potential, we give a “Buy” recommendation at the current market price of $28.22
 

ANZ Daily Chart (Source: Thomson Reuters)
 

Commonwealth Bank of Australia (ASX: CBA)

CBA Details

Strong Capital Ratio:CBA may issue 7,500,000 of PERLS X (CBA’s Capital Notes), which are subordinated, unsecured notes, to raise Tier 1 Capital to satisfy CBA’s regulatory capital requirement while maintaining the diversity of CBA’s sources and types of funding. The net proceeds of the offer will be used to fund CBA’s business. CBA may Redeem or Resell all or some of its PERLS X on 15 April 2025, but this will be subject to APRA’s approval. CBA’s Level 2 CET1 ratio was 10.4% as on 31 December 2017 on an APRA basis and 16.3% on an internationally comparable basis.
 

CET1 Capital Ratio (Source: Company Reports)
 
Consistent with CBA’s approach to capital management, CBA will aim to achieve unquestionably strong capital ratios through a range of initiatives, including organic capital generation and commitment to financial strength. The first distribution is scheduled to be paid on 15 June 2018. The share price was up by 2.31% in past six months but slightly declined in the past one week. While the bank rejects the fresh money-laundering allegations raised against it, the stock looks fully valued. Further, the macro picture is also pointing towards changes in the dividend payments. We believe that CBA is “Expensive” at the current market price of $75.14
 

CBA Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation (ASX: WBC)

WBC Details

Deteriorating scenario: WBC slipped by 1.6% on March 07, 2018 while the group recently indicated that a Capital Trigger Event can occur if Westpac determines or APRA notifies Westpac in writing that Westpac’s Common Equity Tier 1 Capital Ratio is equal to or less than 5.125% on a Level 1 or Level 2 basis. The bank is also attracting negative sentiments in the market.
 

CET1 Capital Ratio (Source: Company Reports)
 
On the other hand, the group’s NPAT was up 7.32% to $7,990m for the year ended 30 September 2017 while revenue from ordinary activities surged by 4% from last year. Nonetheless, the stock is facing headwinds at different levels and margins are expected to stay flat in the near term. The stock thus looks “Expensive” at the current market price of $29.88
 

WBC Daily Chart (Source: Thomson Reuters)

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