Banks

ANZ Banking Group has a price target of $32.50 per share and a Buy stock recommendation from Australian stockmarket analyst UBS. ANZ Personal Division update Wednesday 10am in Melbourne: ANZ is due to hold a Personal Division briefing this Wednesday the 19th of Sept at 10am. Personal is ANZ's 2nd largest div (37% of Group NPAT) & was the fastest growing of ANZ's key divisions in 1H07 (22% pcp). The analysts expect commentary to focus on lead indicators -customer acquisition, cross-sell, customer attrition, main bank share - & key drivers of sustainable growth (some focus on efficiency). In 1H07 ANZ's Personal division delivered strong revenue growth 14% pcp, but only 4% seq, they believe this was partly seasonal (annual fees usually charged in 2H). Cost control was a highlight falling 1% sequentially. Stats from the last Personal division update in June showed: (1) a slowing in accounts opened (although impacted by intro of Visa debit), (2) ANZ with #2 traditional banking market share & (3) #4 in share of wallet, but growing. They believe ANZ still has room to grow. August trading update - Personal "performing particularly strongly": Personal was the highlight of ANZ's August update. ANZ stated that Personal is continuing to perform "particularly strongly" with high asset, liability & rev growth & limited margin attrition. A key question for ANZ is: can Personal maintain its growth profile to offset the underperforming Institutional division? Perceived Key Drivers observed by the analyst for ANZ: (1) valuation considered cheap (2) New CEO Mike Smith is well regarded (3) Best performing retail bank (4) Record of consistent delivery (5) De-risked portfolio. Potential Risks for ANZ Banking Group: (1) Need to turn around Insto, & (2) Demonstrate value in Asian investments. Our price target is based on DCF, Int'l Peers comparison and SOTP.

Australian stock market analyst UBS has provided an Austrlian banking sector update. They have earmarked Westpac (WBC) as the key Buy recommendation in the banking sector. Westpac (WBC) is their key buy post the appointment of Gail Kelly as CEO of Westpac (starts Feb-2008).

Australian banking shares have underperformed the market for a second week running from last week. Despite rising 0.4%, they still underperformed the market by 70bp. The two value plays, WBC and ANZ, rebounded strongly finishing the week up 2.9% and 1.4% respectively. However, partly offsetting this was NAB's underperformance. The bank’s recent UK analyst tour failed to turn sentiment around on the stock, which fell by 2.2% last week. Australian sharemarket analysts Macquarie Research Equities have the following major bank preferences: 1) CBA, 2) WBC, 3) ANZ, 4) NAB, 5) SGB. CBA remains their top pick in the sector with final results and final dividend being announced on 15th August 2007. CBA and WBC continued to dominate local debt market league tables: WBC and CBA continued to dominate the debt market issuance rankings in the June quarter, consistent with recent volume trends reported in their institutional division results. WBC maintained its number 1 position in the Australian syndicated loan market, with 15 issuances and 17.2% market share for the six months ending June. CBA improved its Australian debt market ranking significantly over the last six months, from fourth position a year ago to being number 1, though this partly reflects the large mortgage securitisation issue conducted during the period. This is consistent, though, with the message management put out recently that momentum continues to build within the bank’s institutional division. As a result, rejuvenation of CBA’s institutional banking is also likely to remain a key driver of CBA’s earnings growth in the short term. Personal bankruptcies deteriorate further: Personal bankruptcies in Australia deteriorated slightly further in the June quarter, with year to June bankruptcies increasing by 13% on pcp. Not surprisingly, NSW continued to be the key driver, rising 24% on a year-on-year basis. This is likely to continue to impact arrears levels for the banks in the near term, so far this has not translated into a significant increase in write-offs. The analysts believe that rising bankruptcy rates raise the risk that loss rates will increase more significantly, especially on unsecured personal lending, where these types of lending tend to account for a greater percentage of write-offs. NAB UK downgrades. Post NAB’s UK trip, the analysts have revised their UK forecasts leading to downgrades at the group level of 0.3% in FY07, and 1% in FY08. Their new price target for the Australian bank is $42.80.

Analyst Citigroup Investment Research (CIR) have rated all four major banks with a Buy broker call, including Commonwealth Bank (CBA) and Westpac (WBC). With increased dividends major bank shares are now virtually self-funding. Basel II will reduce capital requirements for the major Australian banks, resulting in increased returns to shareholders. The analyst has raised EPS estimates by up to 5%, dividends by up to 9% and return CBA and WBC to a BUY.

Analyst, UBS maintains Overweight over the the Australian banking sector. The revenue outlook for the Australian banks appears strong and seems to be on track for 8% growth in FY07E (which would be the strongest revenue growth in 10 years). The recent CBA & BEN results and ANZ's trading statement all showed revenue growth above trend levels. This is being driven by (1) 15% credit growth (2) 10% growth in household deposits (3) Good fee income, esp in business (4) Underlying margins holding up. Banks attractive at 77% PE relative.

Macquarie Research Equities (MRE) have reviewed the recent bank sector performance after the end of the recent banking reporting season. Within the banking sector, MRE continues to prefer ANZ (12 month share price target of $28.75) and CBA (12 month share price target of $47.60) given solid revenue growth and the capacity to look to cost opportunities should conditions slow (rather than reverting to cost management just to deliver competitive growth in the current strong environment).