Banks down but not out after tough week
The market wrapped up a choppy week on a positive note today with the healthcare stocks finding most support. A fairly big weekly range for the market of +144pts after a big sell off on Tuesday / Wednesday before a tepid recover on Thursday / Friday. Overall the index finished the week down by -58pts or -1.01%
On the broader market today we had an overall range of +/- 30 points, a high of 5723, a low of 5715 and a close of 5715, up +10pts or +0.17%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
The banks have been in the firing line this week with a rating agency downgrade early on and news that the SA Govt would impose their own bank levy certainly saw volatility tick up, however the underlying performances have OK considering that we often see the banks bottom out in the last week of June, ready for a seasonally strong period in July.
NAB the worst of the majors on the week while CBA was hurt the least which makes sense. Given the composition of NAB earnings they feel the most pain from these changes + they have a high payout ratio so in theory their dividend is at most risk than the other – hence the drop of -2.58% this week. ANZ remains the cheapest (just) followed by NAB, although we tend to think that ANZ’s earnings will start to lag after they continue to exit Asian operations. The old trade-off between safety and growth. It will improve their capital position as the expense of earnings . It’s the reason why ANZ does not feature in the MM portfolio now.
Bank performance over the week – regionals better than the majors. NAB hardest hit, CBA least
The obvious question is whether or not this week’s moves are already been priced in. Shaw and Partners’ bank analyst David Spotswood ran a few assumptions today following news of the SA bank levy + he also assumed the federal bank levy doubles by 2020 to 12bps (states zero) but that the banks can pass on half the cost to customers. The impact he foreshadows is below – about a -2.9% HIT to earnings for both taxes BUT this assumes a doubling of the already announced Federal tax which is yet to be confirmed (but clearly possible).
Clearly, the move is not a disaster for the banks but certainly not positive in an environment where earnings growth is hard to come by. We hold WBC, CBA, NAB but we are active around our allocations to these.
Commonwealth Bank (CBA) Daily Chart
Have a great night & keep an eye out for the Weekend Report on Sunday
The Market Matters Team
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