Banks

Headlines

Bank reporting season mostly drawing to a close domestically. Both ANZ and WBC modest beats relative to fairly bearish consensus estimates.

Summary

Lower impairments, non-existent BDD’s…

…historical NIM pressure (mix, competition, WBC’s exit rate closer to NAB’s NIM)…

…but higher rates a material positive moving forward.

Costs remain a material opportunity for WBC, and progress in today’s result (costs down 10% pcp ex one-offs) is pleasing. Much easier to expand the ROE to the sector average through cost efficiencies and improved ROA’s than it is through leverage or pricing levers, which are difficult to pull in the current environment).

Conclusion

We remain underweight the banks, but significantly narrowed our underweight, given this positive rates beta, with our UW mainly stemming from not holding CBA or the regionals.

CBA self-evidently outrageous compared to peers both global and domestic.

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The trade is not for the very long run, as we see over-leveraged and over-extended households as highly vulnerable to rate rises, but the short-to-perhaps-a-little-less-than-medium-run outlook should be quite reasonable, as the mortgage rate repricing washes through.

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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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