Money CBA, Westpac, ANZ and NAB are in for 'tougher times': UBS report

00:57  12 may  2018
00:57  12 may  2018 Source:   abc.net.au

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The royal commission, rising costs, and tighter lending conditions are some of the factors which led UBS to downgrade its ratings for Australia 's banks .

" Tougher times " are ahead for Australia 's banking sector, according to UBS , with the spectre of the The global investment bank described the first half results of the big four banks as "disappointing" in its report released on Friday.

The big four banks have been downgraded with © Provided by ABC News The big four banks have been downgraded with "sell" and "neutral" ratings by UBS.

"Tougher times" are ahead for Australia's banking sector, according to UBS, with the spectre of the banking royal commission hanging over their shoulders, and their earnings likely to drop in the next few years.

The global investment bank described the first half results of the big four banks as "disappointing" in its report released on Friday.

It also remains "very cautious" in light of rising funding costs, and believes "the risk of a credit crunch is material".

Downgraded banks

Earnings per share (EPS) fell 3.7 per cent across the sector, dragged down by NAB's restructuring costs, in the order of $755 million, as it prepares to lay off 6,000 staff over three years due to technological disruption.

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The Canberra Times . The Australian Financial Review. Domain. Westpac 's rivals were also punished, with shares in ANZ and National Australia Bank falling 2.1 per cent, and The chief investment officer of Atlas Funds Management, Hugh Dive, said the UBS report had triggered the

In Australia , ANZ , Westpac , CommBank and NAB are known as The Big Four banks . Commonwealth Bank of Australia ( CBA ). 9.216 billion. Yes. ANZ . 7 am - 10pm your local time in Australia .

Aside from a sharp slowdown in credit growth, UBS also said the banking sector faced rising costs of 6.6 per cent in the first half — once again pointing the finger at NAB's restructuring.

The higher costs were also due to CBA setting aside $575 million for compliance and potential penalties arising out ofits alleged breach of anti-money laundering (AML) laws.

That's in addition to the banks' net interest margins (NIM) —or the difference between the bank's borrowing costs and the rate it lends — being pulled down from tighter lending standards, as more customers migrate from interest-only to principle-and-interest loans.

"Across the sector we downgraded forecasts [for EPS] by 1, 4, and 6 per cent over the next three years," wrote Jonathan Mott and Rachel Bentvelzen, the authors of the UBS report.

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The Canberra Times . The Australian Financial Review. By Sunday afternoon, Westpac , ANZ and NAB had all followed suit, announcing they too would ditch the fee for cash withdrawals made by a customer from another bank .

"Risks to our forecasts remain skewed to the downside especially as credit conditions continue to tighten and the federal election approaches (likely April/May 2019)."

Despite downgrading every bank, UBS noted there were some positives in the first-half results. Namely, banking sector revenue growing by 1.7 per cent, and NIM rising by 2 basis points (+0.02pc).

To sell, or not to sell

In the year to date, there have been steep losses in the share market for CBA (-11.8pc), Westpac (-4.8pc), ANZ (-1.3pc) and NAB (-3.7pc).

UBS slapped Westpac and ANZ with "sell" ratings, while CBA and ANZ got off better with "neutral" ratings.

It noted Westpac's first-half results benefited from its total revenue per share gaining 2.5 per cent, driven by a mortgage repricing in June last year, which boosted NIM by 7 basis points (+0.07pc).

But UBS had doubts about the quality of Westpac's assets, first raised a fortnight ago.

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Financial Times . Sign In. Subscribe. ANZ and NAB declined to comment while Westpac was not immediately available to comment. David Murray, a former chief executive of CBA and author of a government commissioned report into the finance sector in 2014, defends the current system.

Stocks in the big four banks have rallied hard over the past week - harder than the sharemarket in general - prompting analysts to suggest the sector has bottomed. CBA , NAB , Westpac , ANZ back in favour. Things are lining up for the big four banks . Photo: Paul Rovere. Tweet. Facebook. Of. ╳. Exit.

This was in light of Westpac's poor home lending practices, in APRA's Targeted Review,revealed publicly at the royal commission.

NAB's first-half results were "subdued" on the other hand, with revenue per share down 0.3 per cent, and loan growth at just 1 per cent.

However, NAB's earnings per share plunged by a sharp 18.5 per cent, given its substantial restructuring costs.

"Messy" was how ANZ's first-half results were described — though its net profit surged 14 per cent to $3.3 billion.

"While ANZ's costs fell on an absolute basis, there were no efficiency gains on a per share basis."

UBS found CBA's first-half result to be "reasonable", with its net profit beating expectations, and revenue per share gaining 4.6 per cent.

But the revenue growth was eroded by CBA's $200 million provision for the royal commission legal costs, and $375 million for potential AML fines.

Of course, there is no guarantee that AUSTRAC will settle its case against the nation's biggest bank for that amount, or whether there will indeed be a settlement.

Australia's Westpac appoints new customer relations head .
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