Banking Sector Update

Submitted by Jim Thesiger on 23 May, 2008 - 20:10

Australian Banking Sector Update provided by Australian stockmarket analyst Macquarie Research Equities.

Banking Sector Revisited

The Australian financial sector outperformed the Aussie market last week with a 2.9% gain against the 2.8% added by the All Ordinaries. New developments in the banking space, in particular the proposed merger between WBC and SGB, and the provisioning update by CBA renewed positive sentiment in this space. Macquarie Research Equities (MRE) analyses the recent activity in the banking sector and deliberates their sector “picks” and recommendations…

Banking Sector Impacts

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

  • Banks in Line with Market:

    The merger bid by WBC and a trading update by CBA certainly provided an interesting week for the banks. Of the major players this is how they finished last week: SGB +24.9%, NAB +5.5%, CBA +2.4%, ANZ -0.2% and WBC -4.3%. For the regional banks, BEN was up 10.5% and BOQ was 6.9% HIGHER;

  • Wespac to Slay the Dragon:

    After a couple of years of growing speculation about NAB and ANZ launching takeovers, WBC has finally announced a merger bid for SGB. The offer is based on a share swap ratio of 1.31 WBC : 1 SGB. Market belief is that the deal will provide management efficiencies as well as financial synergies for the conglomerate. Furthermore, although competing banks have not ruled out competing bids for SGB, MRE feel that such developments are unlikely. For example the CBA would encounter significant regulatory resistance given the extent of its current market share. In NAB and ANZ’s case, their offshore banking focus nullifies the prospects of a domestic takeover.

  • CBA’s lower provisioning concerns:

    CBA’s 3Q trading update highlighted its strong capital position under Basel II with a pro-forma Tier 1 of 8.2% compared to ANZ 6.9% and WBC at 7.4%. However, MRE do state their concern over the lower level of collective provisioning versus their peers.

MRE also emphasise that their sector preferences in the order of WBC, NAB, ANZ, SGB and CBA. Regional preferences remain as BOQ and BEN in that order.