Bank Earnings Set To Test Market Confidence

An important week for market confidence and momentum with the ASX 200 eyeing a return to the all-time highs of July.

This week sees the first two September 30 balancing banks produce reports and the continuing strength of the current rebound for the ASX 200 could very well depend on the results and the quality of the stories told in both reports.

The ANZ releases its full-year figures early Thursday morning and Macquarie releases it’s 2019-20 interim the next day (explosives maker, Orica also releases its full-year figures as well on Friday).

For investors, the question of dividends sustainability looms large with the big four banks all increasing their customer remediation costs in the past month or so.

The ANZ added more than $400 million a week or so ago to its 2018-19 bill which will top $680 million.

A question for the market is will the ANZ continue to pay $1.60 a share (it paid an 80 cent interim) full-year dividend when it reports this week? Some analysts reckon they will and will keep its dividend reinvestment plan going with perhaps an attractive discount.

Other forecasts suggest the final could be lifted to 82 cents – not too many think there will be a cut.

Westpac and the NAB report next week.

UBS banking analyst Jonathan Mott believes the upcoming bank reporting season in Australia is likely to be the “high water mark for the sector as the outlook deteriorates in an ultra-low rate environment”.

“Net-interest margins (NIMs) benefited from a lower BBSW-OIS spread this half, but rate cuts, deposit pricing, competition and the run-off of hedges/replicating portfolios will be a drag,” Mr. Mott told clients in a note sent to clients last week.

Mr. Mott believes Westpac will reduce dividend payments to shareholders.

“We now expect WBC to cut its dividend from 94 cents per share (cps) to 84cps this half, and offer a discounted dividend reinvestment plan,” Mr. Mott said.

“WBC may also abandon its 13-14 percent return on equity (ROE) target and adopt a more appropriate target – around 11-12 percent – for the ultra-low rate environment.”

He also said that revenue growth and capital will be the focus in the ANZ’s results while for the NAB, Mr. Mott said he expects headline profits to be held back by remediation costs.

Those remediation costs will hit the NAB by more than $1.7 billion with most of that falling in the second half. On top of that, the NAB has warned around $350 million of capitalised computer and tech software and other costs will be written off in the second quarter and will impact earnings.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →