Banking Sector Update

Submitted by Jim Thesiger on 5 May, 2008 - 16:22

The Australian banking sector outperformed the market last week by an impressive 3.2% by Australian stockmarket analyst Macquarie Research Equities.

Banking Sector – Renewed Sentiment

The Australian banking sector outperformed the market last week by an impressive 3.2%. Particularly over the last fortnight we have seen a marked increase in the trading of banking stocks, and this can be attributed to a number of key factors. Firstly, the US banks provided relief with better than expected interim earnings reports, then Australian banks ANZ and WBC buoyed the market further as investors were comforted by the deliberations of balance sheet fundamentals and earnings outlooks; and finally key economic date released in the US last week renewed sentiment that perhaps the worst was over.

Banking Sector Impacts

Macquarie Research Equities (MRE) highlights some of the recent impacts experienced by the Australian Banking Sector:

  • Banks outperformed the market by 3.2%. Encouraging commentaries lifted the market on Friday. For the week all the majors were up, NAB was up 7.6%, ANZ up 6.3%, SGB up 4.6%, WBC up 3.9% and CBA up 3.3%
  • Increased risk exposures. MRE state their excitement over Basel II disclosures from the top banks, with WBC recently emphasising a lower level of risk in their business. MRE also argue that WBC’s lower risk and stronger adjusted returns should assist shareholders on the back of new regulatory capital initiatives.
  • Further flexing of market power to improve margins. CBA and SGB have followed suit from WBC in regards to lowering broker commissions in the mortgage space. Whilst the reduction are not as aggressive as WBC’s cuts, the collective reduction across banks indicates a clear shift in dynamics and the increasing power of banks in the mortgage space.

Banking Sector Upcoming Reporting Dates

  • SGB: 06/05/2008
  • NAB: 09/05/2008

MRE also emphasise that their sector preferences in the order of WBC, NAB, ANZ, SGB and CBA. Investors will be viewing the upcoming reports very closely, with any positives likely to buoy the market further. Banks have certainly had a tough time since August, and thus any further positives from this week’s reports should continue to renew the weak banking sector sentiment.