Major Banks: Outlook better than results will suggest

About the author:

Azib Khan
Author name:
By Azib Khan
Job title:
Senior Analyst
Date posted:
28 October 2019, 3:10 PM
Sectors Covered:
Banks

ANZ, Westpac and NAB will report their results in the coming days.

  • We continue to expect major bank net interest margins (NIMs) to be broadly stable over FY19F-FY21F.
  • The outlook for system housing credit growth has improved in our view, particularly based on Sep-2019 quarter data from AFG and CoreLogic.
  • On dividends, while we do not believe Westpac (WBC) needs to cut its nominal dividend, our base case is that WBC will opt to cut when it reports its FY19F result due to domestic institutional investor pressure. We do not expect any other dividend cuts in the upcoming results.
  • The FY19F results will be marred by customer-related remediation costs, however we do not expect these to recur to the same extent in FY20F.
  • WBC remains our preferred major bank. (Morgans clients can login to view the full sector report)

ANZ Banking Group (ANZ)

ANZ will report its FY19F result on Thursday 31 October 2019.

We are forecasting FY19 cash earnings of $6.405bn and a final dividend of 80cps fully-franked (unchanged from the interim dividend).

ANZ has already announced its expected customer remediation-related charges for 2H19F and these are already factored into our forecasts.

We expect Australian home loan book contraction to be a disappointing element of the result, however we expect a disciplined cost outcome.

We will closely be analysing the trend in 90+ day arrears in the Australian home lending portfolio.

Westpac Banking Corporation (WBC)

WBC will report its FY19F result on Monday 4 November 2019.

We are forecasting FY19 cash earnings of $7.126bn and a final dividend of 84cps fully-franked (down from the interim dividend of 94cps fully-franked).

While, based on our forecasts, we do not believe WBC needs to cut its nominal dividend, our view is that WBC’s Board will opt to cut next month largely due to domestic institutional investor pressure.

If the cut eventuates for this reason, then we expect the share price to respond favourably post the cut. WBC has already announced its expected customer remediation-related charges for 2H19F and these are already factored into our forecasts.

National Australia Bank (NAB)

NAB will report is FY19F result on Thursday 7 November 2019. We are forecasting FY19 cash earnings of $5.150bn and a final dividend of 83cps fully-franked (unchanged from the interim dividend).

NAB has already announced its expected customer remediation-related charges for 2H19F and these are already factored into our forecasts.

NAB's new CEO, Ross McEwan, is scheduled to commence on the 2nd of December; we expect him to further accelerate NAB's investment spend and potentially increase the focus on product reviews and customer remediation-related issues.

We also believe it is conceivable that there will be some clearing of the decks when the new CEO commences, and this may chew into NAB’s CET1 capital position.

Changes to forecasts:

We have not made any material changes to our cash EPS forecasts.

More information

Morgans clients can login to view further analysis in our detailed Banks sector report. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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