Higher Funding Costs Weigh On The Banks

Posted on | by Todd | Leave a Comment on Higher Funding Costs Weigh On The Banks

Shares of the major banks have traded on both side of the ledger since the announcement of the Banking Royal Commission last week.

There’s been plenty of articles written about what the impact will be and what investors can expect from the share price and dividends from these blue-chip companies.

However, one of the areas of the banking business which has not received much press is the negative impact from increased funding costs for the banks from overseas lenders.

Over the last two years, CBA, WBC and the NAB have issued over $145 billion in long-term wholesale debt to overseas lenders.

This is up from just under $110 billion in FY 2015 and reflects the increased reliance that the local banks have on overseas lenders

We would expect the increased in funding costs, combined with lower domestic loan margins, to cap any protracted rallies in the local banks over the next 12 months.

Our ALGO engine triggered a sell signal for the CBA on November 10th at $80.90. This is in addition to the ALGO sell signals in SUN at $14.20 and BEN at $12.30.

CBA

SunCorp

Bendigo BAnk

 

 

Algo Buy Signal – ANZ, NAB & WBC

Posted on | by Leon Hinde | Leave a Comment on Algo Buy Signal – ANZ, NAB & WBC

Following the recent sell-off in the major banks, we’re now seeing the Algo Engine flag the short-term “higher low” formation.

We’re cautious about entering these positions on the long-side due to the regulatory risks the banks face & the limited top-line revenue growth outlook for the sector.  However,  the search for yield may support another push higher in prices.

ANZ, NAB & WBC are buy signals, (place stop loss below signal low), CBA & SUN are showing sell signals.

 

 

 

 

 

 

 

Bank Shares Roiled On Royal Commission Announcement

Posted on | by Todd | Leave a Comment on Bank Shares Roiled On Royal Commission Announcement

Shares of the “big-4” banks are trading sharply lower as the Government announced a $75 million Banking Royal Commission before the ASX open today.

When making the announcement, PM Turnbull said it was a regrettable but necessary action.

The terms of the inquiry are wider than the market expected and will include the entire financial services sector. The final report will be due in February 2019.

We have been giving the banks a wide berth recently due to likely headwinds from slower loan growth and falling profit guidance. We’ll continue to watch the ALGO engine for trade updates and future levels to enter the market.

MVB Aussie Banking ETF

 

 

Major Banks Set To Report Earnings

Posted on | by Todd | Leave a Comment on Major Banks Set To Report Earnings

The ANZ will announce its annual results on Thursday as the first of the major banks to report over the next three weeks. NAB will report next Thursday and WBC will report the following Thursday.

ANZ is expected to announce a full year cash profit of $6.89 billion and a DPS of 83 cents on revenue of $20.7 billion. Much of this gain is based on stronger owner-occupied home lending.

Analysts are expecting ANZ to be the first of the major banks to return capital to shareholders given its pro-forma position outlined by APRA last month.

At this point, the NAB’s profit forecast is expected to be $6.6 billion with a DPS of 99 cents.

MQG will report their half-yearly results this Friday. The numbers on the street are reflecting a profit of $1.1 billion with a DPS of $2.10 per share.

ANZ

NAB

 

Westpac

MQG

Rotation Out Of Banking Stocks

Posted on | by Todd | Leave a Comment on Rotation Out Of Banking Stocks

Since Treasurer Scott Morrison announced a banking levy in the May 9th budget, banking stocks have been sold off across the board.

It’s become clear that a fair percentage of this investment flow has rotated into the local Insurance names with IAG and Suncorp both posting material gains since early May.

We hold both of these stocks in client portfolios and they are now up 12% and 8% since mid-May, respectfully.

With respect to the re-valuation in the banking shares, NAB has posted a fresh low at 29.00 in early trade today.

Both WBC and ANZ are approaching the lows posted in early June, while MQG and CBA have held up better but are still pointing lower.

On balance, we continue to expect to see rotation out of the banking names to the benefit of the insurance stocks.

IAG

Suncorp

NAB

Bad News For Aussie Banks

Posted on | by Todd | Leave a Comment on Bad News For Aussie Banks

Australian banking names received a double-dose of bad news last night as the Parliament passed the $6.2 billion banking levy and Moody’s downgraded their long-term credit ratings citing risks associated with the local housing market.

Shares in all the major banks have opened lower today with Westpac half-a-percent lower. The banking stocks have posted a rebound over the last few sessions but now look poised to re-test the lower price levels seen in early June.

Our ongoing concern about the banking sector’s current valuations have been: limited growth in the loan generation area, as well as, deteriorating quality of their overall loan exposures.

The banking levy, which commences July 1st, and the prospects of higher funding costs due to the credit downgrade won’t improve the banking sector’s profitability over the longer-term.

ANZ

CBA

MQG

NAB

WBC

ALGO Engine Buy Signal For NAB

Posted on | by Todd | Leave a Comment on ALGO Engine Buy Signal For NAB

The ALGO engine triggered a buy signal for NAB at $30.40 on Friday.

NAB shares have dropped over 11% since posting an intra-day high of $34.00 on May 1st. Several internal momentum indicators are showing an overbought condition.

With US equity markets stabilizing after Wednesday’s sharp sell off, it’s likely that all the local banking names will get a lift when the ASX re-opens on Monday.

We see scope for a corrective bounce into the $32.50 area, and suggest looking to buy NAB shares outright, or consider buying the $32.00 call options into June.

NAB Shares Still Pointing Lower

Posted on | by Todd | Leave a Comment on NAB Shares Still Pointing Lower

On May 4th, we posted a report that the NAB’s H1 results would likely lead to a sell off back to the January lows of $30.50.

After going ex-dividend today, NAB shares have traded down to $31.65. A combination of the new bank levy and increased bad debt provisions will likely continue to weigh on the stock price.

We maintain our $30.50 target and suggest buying put options into June or selling covered calls to enhance portfolio returns.

 

NAB Posts Mixed Results

Posted on | by Todd | Leave a Comment on NAB Posts Mixed Results

NAB announced a 2.3% increase in its H1 cash profit to $3.29 billion, which was largely in line with the street’s expectations, but much better than the $1.74 billion loss for the March 2016 half-year result.

While cash earnings grew, net interest margin fell 11 basis points to 1.82%. Charges for bad debts were up 5.1% to $394 million.

The bank maintained its interim dividend at 99 cents per share, fully franked.

Shares of NAB raced to a high of $33.80 at the open but have now settled back into the low $33.00 handle. Our near-term target is around the January lows of $30.50.

 

Australian Bank Earnings

Posted on | by Leon Hinde | Leave a Comment on Australian Bank Earnings

On 2nd May, ANZ will report their half-year earnings. The market is expecting a net profit of around $3.7b and DPS for the half year of $0.80.

4th May, NAB will report their half-year earnings.  Net profit should be around $3.4b and DPS of $1.00.

5th May, Macquarie Bank reports. Net profit is expected to be similar to last year at $2.15b and DPS of $2.52

8th May, WBC report their half-year result. Net profit should be $4b and DPS $0.95

On average, the market is looking for approximately 3% underlying EPS growth among the banks and dividends to remain steady, or the same as the previous 12 months.

Charts – MVB (Vaneck Aust Bank ETF)