Alex David Walker

Written by David Walker
Senior Analyst, StocksInValue

Summary of original article published by StocksInValue on 19 August 2015

Bank stocks remain topical and of central interest to investors. StocksInValue Analyst, David Walker provides the key takeaways that have come out of the recent bank announcements and capital raisings.

Capital Raisings

As mentioned in last week’s article, ‘Who was clever in the ANZ Capital Raising?’, NAB, ANZ and CBA have since announced their proposals to raise a combined $13.5 billion in capital due to APRA pressures. At time of writing, Westpac Banking Corporation (WBC) is the only major bank yet to announce an equity raising other than an underwritten dividend reinvestment plan.
The updates and capital raisings confirm an outlook of (modestly) declining return on equity (ROE) and low-single digit dividend growth for banks. Our adopted return of equity for NAB and WBC was downgraded on 6 August to reflect dilutive equity raisings and our outlook for rising loan impairments.

Reporting Season Wrap

  • 4 August: SUN released its FY15 results
  • 6 August: ANZ announced a $3bn equity raising and issued an abbreviated update on financial performance for the nine months to 30 June
  • 10 August: NAB released a June quarter trading update
  • 12 August: CBA released its FY15 results and launched a $5.0bn 1 for 23 rights issue at $71.50
  • 17 August: WBC released a June quarter capital and asset quality update
  • 18 August: ANZ gave a trading update for the nine months to 30 June.

Key Takeaways

National Australia Bank (NAB)

What we like

  • NAB divestments bolster regulatory capital.
  • NAB reported accelerating business lending growth and also sees improvements in business confidence and conditions.

What we don’t like

  • Deteriorating credit quality
  • Fresh UK conduct provisions

Suncorp Group (SUN)

What we like

  • Suncorp turnaround complete: Strong bank and life insurance earnings growth supported group earnings during SUN’s worst-ever year for insured weather event claims

What we don’t like

  • SUN’s general insurance Net Profit After Tax (NPAT) of $756m was down 25%
  • The general insurance result was inflated by unusually large insurance provisions releases

Commonwealth Bank of Australia (CBA)

What we like

  • Solid business lending growth
  • CBA reported growth in business loans of 4% half on half and 8% year on year, partly driven by a boost to business confidence from the Federal Budget. Good conditions for global asset managers

What we don’t like

  • Lower-quality profit results – profit barely met expectations, driven by “other income”
  • CBA’s group cash earnings of $9,137m were 1% above consensus expectations of $9,068m but this was facilitated by $370m of “other income”, namely structured finance income and gains on the sale of investments. Without these items the group result would have disappointed.

Australia and New Zealand Banking Corporation (ANZ)

What we like

  • ANZ reported 4.3% growth – better than CBA’s 2H
  • Solid lending growth to firms of all sizes
  • Good momentum in retail and business lending, deposits and customer numbers.

What we don’t like

Westpac Banking Corp (WBC)

What we like

  • Asset quality trends are benign currently

What we don’t like

  • Westpac would need a larger equity raising if asset quality trends were to deteriorate

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