Australia | Apr 24 2019
Brokers weigh up a subdued outlook for major banks ahead of interim reports in early May. Dividend reductions are considered highly probable, particularly at National Australia Bank.
-Rising credit losses should be monitored, Citi advises
-Trading income and banking fees likely to remain under pressure
-Modest dividend reductions could be forthcoming, particularly at NAB
By Eva Brocklehurst
Yields on banking stocks are in the sights of brokers, as interim results reporting nears and another major bank discloses further remediation costs. National Australia Bank ((NAB)) has advised it will review its dividend at the first half result, after reporting remediation-related charges of $525m after-tax for the first half. Of the charges, around 91% relate to the wealth business.
The three major banks, National Australia Bank, ANZ Bank ((ANZ)) and Westpac ((WBC)) will report interim results in early May. Macquarie Group ((MQG)) will also report FY19 results on May 3.
Credit Suisse believes the sector is exposed to earnings downgrades, amid lower asset growth and continued margin pressure. Moreover, asset quality will provide little in the way of protection from the headwinds.
JPMorgan expects the results to be messy, because of significant remediation costs, while net interest margins should reflect ongoing competition for mortgages. National Australia Bank is expected to show the best cash profit growth while ANZ Bank is likely to lag.
Benign asset quality trends are expected and capital positions remain solid, as major banks all should be above the 10.5% CET1 ratio. Still, the broker suspects further capital management plans are likely to be tempered by the proposed capital rules outlined by the Reserve Bank of New Zealand.
Concerns were raised about the stance of the RBNZ and its proposed new capital rules, but these concerns have now softened as has the potential for adverse capital or a dividend event, Citi suggests.
Credit Suisse expects ANZ Bank to provide a disappointing first half result, with a subdued balance sheet and continued margin pressure. The banks are expected to improve their expense verification while mortgage re-pricing should allow net interest margins to recover, although this may be competed away or affected by mix and switching.
Meanwhile, trading income and banking fees are likely to remain under pressure. Alarm bells will ring for the broker if there is any weakness in the upcoming first half reports in terms of mortgages and the automotive, small-medium enterprise (SME) and consumer segments.
For Macquarie Group, Credit Suisse believes it will be about maiden guidance for FY20 from the new CEO. A conservative statement is considered the likely starting point and key to this will be the proportion of performance fees from recent transactions that appear in FY19 or FY20.
Dividend forecasts are starting to diverge and Citi notes an increasing propensity to cuts to dividend forecasts in outer years on the basis of tight capital positions, remediation costs and potential macro concerns across the sector.