Investors ignored the blow out in Tuesday’s ANZ’s impaired loans and tut tutted over the rise in the CBA’s figures on Wednesday, but then Westpac (WBC) reported yesterday a small rise in its bad debts and pointed to soft non-interest income (which the others had also experienced in some areas) and whooska, down went the bank sector and the wider market.
It was almost comical as investors ignored the bad news buried in the ANZ report on Tuesday (and focused on its retreat from Asia and getting rid of assets in some parts of the bank) and sent the shares higher.
The CBA’s flat result and weak second half on Wednesday did raise some concerns among investors, but the wider market was only down 8%.
But it was a different story after Westpac pointed to softer non-interest income in the third quarter due to subdued markets and rising funding costs.
Westpac shares ended down 2.5% at $3.02, it was down 3.5% at one stage after it told the market in its third quarter update (without profit figures) that “institutional activity has remained subdued leading to lower markets-related income and a decline in fees from debt markets activities”.
ANZ shares fell 1% to $26.48 and the NAB shares lost 1% to $26.55 and CBA shares fell 1.8% to $75.95.
In its market update on Thursday, Westpac said its non-performing loans remain near cyclical lows. But it pointed to a small increase in the number of loans more than 90 days past due but not impaired, mainly residential mortgages.
These reflected changes to the way the bank reports mortgages in hardship and also higher delinquencies in Western Australia, South Australia and Queensland, it said.
Westpac also said it had put $1.4 billion more business loans onto its watchlist, due to “increasing stress in mining-related regions for some business bank customers" and the "impact of stress in the New Zealand dairy industry".
Westpac said the rise in mortgage repayments more than 90 days overdue and an increase in assets on its watchlist had pushed its stressed exposures for the three months to June 30 up to 1.15% of total exposures, from 1.03% in the previous quarter.
The bank said the increase in watchlist and substandard assets to $1.4 billion reflected stress in the New Zealand dairy industry and challenges facing some business customers in mining-related regions.
CBA lost ground yesterday after various analysts highlighted softness in the bank’s full year result on Wednesday, including the continuing decline in return on equity, weakening revenue and the modest deterioration in asset quality.
UBS analyst Jonathan Mott described the CBA’s fee income in 2015-16 as being “weak”, with commissions and wealth management returns “down sharply”, while “asset quality is now on a deteriorating trend".
Morgan Stanley analyst Richard Wiles said he expected CBA’s return on equity to continue to decline and for bad debts to increase in the 2017 year.
Credit Suisse analyst Jarrod Martin said while CBA’s margins were holding up reasonably well and bad debts are relatively stable, “revenue growth is under considerable pressure” but he pointed out that “dividend sustainability pressures have increased”. PS. AMP shares fell 3.7% yesterday to $5.65, seeming caught up with the banks in the sell down sparked by Westpac’s update.That fall took the shares negative for the year so far from the 1.4% rise to the close of business on Wednesday.
Seeing the company reports its half year result next Thursday, it might pay to keep a closer eye on the shares’ performance between now and then. There could be a message in the market that shareholders may not like.
