Australian Banking Sector News Update

Submitted by Jim Thesiger on 16 June, 2008 - 16:44

The Australian Banks underperformed the market by 0.7%.The Macquarie Research Equities (MRE) highlights about the Australian Banking Sector Impacts.

Which Banks to Support?

The Australian Banks underperformed the market by 0.7% last week, yet still trade well below their November 2007 highs. Macquarie Research Equities (MRE) highlight their sector picks as WBC and CBA given stronger balance sheets, low risk loan portfolio’s and lower exposure to offshore earnings. MRE assess the week in passing and reaffirm their sector guidance…

Banking Sector Impacts

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

  • Banks Underperform the market by -0.7%: For the majors WBC down 3.7%, CBA -3.8%, NAB -4.2%, SGB -4.4% and ANZ -5.3%. Regional banks fell even further with BOQ down -7% and BEN -10.5%
  • MRE emphasise Quality over Value: MRE stipulate there view for quality and lower risk banks, namely WBC and CBA. This comes in the face of slowing credit growth, structural margin decline and higher-than-normal impairment costs. MRE does, however, highlight their cautious approach to the banking sector but argue that the stronger balance sheets, lower risk loan portfolios and limited off-shore exposure support this argument. And whilst ANZ and NAB may offer some appeal, given ANZ’s 22% exposure to NZ and NAB’s 15% UK exposure there is reason for concern.
  • First low doc RMBS issue encouraging, but no broad relief yet: Current issuances do offer attractive yields for investors. Mortgage pricing for new loans at 145 – 180 bp still exceeds the average spread for a prime mortgage (~120bp). So whilst these offers are pleasing, it is unlikely to rebuild the primary RMBS market in earnest any time soon.
  • MRE Pick of the Crop:

    In order of preference MRE reaffirm their banking sector picks as WBC, NAB, ANZ, SGB and CBA. Regional preferences remain as BOQ and BEN in that order.

    The complexity of market activity over the last 12 months has certainly caused considerable investment uncertainty. With many investors feeling the pinch in their margin lending accounts, perhaps a protected lending strategy would provide some comfort for investors still looking for Australian equity exposure. If a leveraged and protected strategy appeals to your financial needs have a look at the MQ Listed Protected Loan – the next generation in protected lending:

    MQ LPL Website: www.macquarie.com.au/lpl