Banking Sector Update Today

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

Banking Sector – Westpac (WBC) Looks to Slay the Dragon

The Strain of rising interest rates, spiking inflationary pressure and low levels of consumer sentiment seemed to take its toll on the Aussie banks last week as they underperformed the market by 4.3%. Macquarie Research Equities (MRE) discusses the key highlights of the week and the implications for the sector. With the exclusivity period for the SGB merger ending, what’s next?

Banking Sector Impacts

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

• Banks Under-performed Last Week: Impairment risks and an easing economy weighed on the banks last week with the sector underperforming the market by 4.3%. All the majors finished lower with SGB -2.9%, NAB -4.5%, CBA – 5.9%, WBC -6.6% and ANZ -8.5%;
• Exclusivity period for SGB merger ended, what next? The two-week period within which both WBC and SGB were to conduct due diligence and negotiate finer details of the merger was completed last Friday – thus expect an update from WBC early this week. It is also interesting to note that SGB is currently trading 8.8% above the share swap ratio of 1.31 WBC shares for each SGB share. MRE relate this to the market pricing in a competing bid or perhaps even a higher offer from WBC;
• Improvement in Term Funding: The key Australian banks have also been active raising term funding last week. And although pricing is higher that prior to the credit crunch it has improved. Standout raisings include ANZ with $1.5bn of 5 year bonds at 128bps above BBSW, and NAB raising $1.6bn of 5 year bonds at 108bps over BBSW.

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.