Which bank stock to buy? – ANZ, NAB, CBA or WBC

Australia and New Zealand Banking Group

ANZ Details

ANZ is comfortable with its Common Equity Tier-1 (CET1) capital position following the recent release of Australian Prudential Regulation Authority (APRA) norms on capital adequacy ratios as part of its strategy to establish unquestionably strong capital ratios for the Australian banking sector. Under the new framework, Authorized Deposit Taking Institutions using Advanced Internal Ratings Based models will be required to target a CET1 ratio of around 10.5% by January 2020 inclusive of buffers. ANZ’s reported capital position as at 31 March 2017 was 10.1%, equivalent to an APRA CET1 of 10.5% on a proforma basis, shows the Groups’ strong organic capital generation. Further, with the benefits from the recently announced asset sales, ANZ is well placed to achieve the strengthened capital standards ahead of the schedule outlined by APRA. Given the banks diversified portfolio, adequate liquidity and funding position with reduction in provisions, we maintain a “Buy” recommendation the stock at the current market price of $29.49


ANZ Daily chart; (Source: Thomson Reuters) 

National Australia Bank Ltd.

NAB Details

NAB is well positioned to meet the new Common Equity Tier-1 (CET1) capital ratios as it has a strong balance sheet and built a capital buffer above CET1 target range in anticipation of such changes. As at 31 March 2017, NAB’s CET1 ratio stood at 10.1% on an APRA basis and expects to meet these additional capital requirements in an orderly fashion. Further, APRA’s new capital requirements provide clarity and certainty and ensure the strength and stability of the Australian banks.We give a “Buy” recommendation on the stock at the current market price of $29.93
 

NAB Daily chart; (Source: Thomson Reuters) 

Commonwealth Bank of Australia

CBA Details

Civil penalty proceedings against the CBA: Commonwealth Bank of Australia was accused of money laundering breaches in the first case of its kind against a major bank.  Australia’s financial intelligence and regulatory agency (AUSTRAC) initiated civil penalty proceedings in the Federal Court against the bank for serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). AUSTRAC’s action alleges over 53,700 contraventions of the AML/CTF Act, and CBA did not comply with its own AML/CTF program as it did not carry out any assessment of the money laundering and terrorism financing (ML/TF) risk of IDMs before their rollout in 2012. Further, CBA took no steps to assess the ML/TF risk until mid-2015 - three years after they were introduced and did not comply with the requirements of its AML/CTF program relating to monitoring transactions on 778,370 accounts. Moreover, CBA failed to give 53,506 threshold transaction reports (TTRs) to AUSTRAC on time for cash transactions of $10,000 or more through IDMs from November 2012 to September 2015. These late TTRs represent approximately 95% of the threshold transactions that occurred through the bank’s IDMs from November 2012 to September 2015 and had a total value of around $624.7 million. Importantly, AUSTRAC alleges that the bank failed to report suspicious matters either on time or at all involving transactions totaling over $77 million. However, the bank is currently reviewing AUSTRAC’s claim and will file a statement of defense. Given the uncertainty of the ongoing developments, we give an “Expensive” recommendation on the stock at the current market price of $80.72


CBA Daily chart; (Source: Thomson Reuters) 

Westpac Banking Corp

WBC Details

Sale of Hastings Management Proprietary Limited: Westpac Banking Corporation (ASX: WBC) and Charter Hall Group (ASX: CHC) have entered into exclusive discussions regarding Westpac’s proposed sale of Hastings Management Proprietary Limited (Hastings). Hastings is a global infrastructure real assets business which has operated for over 22 years, headquartered in Australia with offices in Melbourne, Sydney, London, New York and Asia. Hastings currently has Funds under Management of approximately $14.3 billion managed by approximately 100 professionals. Moreover, Charter Hall Group expects that the proposed sale provides an attractive expansion opportunity across its real assets funds management.

On regulatory front, Westpac also well place to meet the new capital requirements to boost its CET1 capital ratio, reporting a CET1 capital ratio of 10.0% at 31 March 2017. APRA also announced its intention to release a discussion paper on proposed revisions to the capital framework later in 2017, with draft prudential standards to be issued in 2018, leading to a final release of final prudential standards in 2019 which are anticipated to take effect in early 2021. We give maintain an “Expensive” recommendation on the stock at the current market price of $31.54


WBC Daily chart; (Source: Thomson Reuters)

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