Westpac – 1Q19 In Review

Westpac WBC reported 1Q19 earnings on Monday and despite the benefit of mortgage re-pricing pushing net interest margins higher, earnings exhibited no growth compared to the same time last year.

1Q19 cash profit came in at $2bn.

All banks, (excluding ANZ & MQG), are under Algo Engine sell conditions and we see little reason in the short term for these negative trends to reverse.



ALGO Sell Signal For Westpac

Our ALGO engine triggered a sell signal for WBC into the ASX close at $27.70.

This “lower high” pattern is referenced to the intraday high of $28.35 posted on September 28th.

WBC will go ex-dividend for 94 cents on Tuesday.

With round 7 of the Royal Commission scheduled to start on November 19th, we remain cautious of the price structures and forward margin growth of the domestic banks.

As such, we see scope for the local banking names to retest the October lows over the near-term.




Australian Banks – Sell Signals Remain Dominant

Our Algo Engine triggered sell signals across the domestic banking names back in June.

Since then, on average, the group has sold off approximately 15% and on a 2-year basis, the sector is now down more than 30%.

ANZ announced this week, that its 2H18 cash earnings will be adversely impacted by $711m of after-tax charges related to legal costs and customer remediation from the Royal Commission.

ANZ releases their full-year NPAT on October 31st.

A second sector risk yet to play-out, is the potential for deteriorating credit quality. This risk has been exacerbated over recent years by “add backs”, where short term earnings are improved through lowering the provisions for bad loans.

Looking ahead, CBA chief Matt Comyn will face the royal commission on Thursday morning, followed by WBC’s Brian Hartzer Thursday afternoon and ANZ’s Shayne Elliott on Friday.


Westpac Gets A Lift From Higher Rates

Our ALGO engine triggered a buy signal for WBC on Monday’s ASX close at $27.76.

This “higher low” price pattern is referenced to the low of $27.24 posted on June 14th.

WBC shares got a lift yesterday after investors reacted positively to the bank’s out of cycle increase of variable rate mortgages.

Effective September 19th, WBC will impose a 14 basis point increase to all standard mortgages, which will lift the rate to 5.38%.

In previous postings, we have cited  compressed margins and decreasing loan creation as a potential headwind for the banking sector and consider the recent upside price action as corrective in nature.

We expect the other major banks to follow WBC’s lead and lift variable mortgage rates over the next few days.


Banks Brace For Round 5 Of The Royal Commission

The Big four banks will be in the spotlight this week as the Banking Royal Commission commences round five today in Sydney.

The main topic for this round of examination will be the fees, charges and weak performance of bank-managed superannuation funds.

One Melbourne-based think tank has estimated that excessive fees and poor performance can cost superannuation investors up to $12 billion per year.

Australia’s largest superannuation provider, AMP, felt the wrath of the Royal commission during the last round of testimony, which saw their share price drop over 30% and the sacking of its chairman, CEO and three other directors.

The chart below illustrates the performance of AMP’s share price relative to the other Big 4 banks.

We don’t have ALGO buy signals for any of the domestic banks and we’re not holding any banking names in our ASX Top 100 portfolio. However, we will look for signals as the share prices approach the June lows.