Macquarie suspects the perceived benefit for banks from rising interest rates is inflated. Various offsets, including competition, have constrained margin upside.
The broker expects banks will remain leveraged to bond yields and, if the sector continues to outperform from rising rate expectations, then investors are advised to take profits ahead of the turn around.
Commonwealth Bank’s rating is downgraded to Underperform from Neutral, following a strong rally in the share price. The main upside, Macquarie assesses, is ongoing material share gains and the ability to preserve margins despite the impact of lower rates. Target is raised to $88.50 from $86.00.
Target price is $88.50.Current Price is $98.59. Difference: ($10.09) – (brackets indicate current price is over target). If CBA meets the Macquarie target it will return approximately -11% (excluding dividends, fees and charges – negative figures indicate an expected loss).