Morgan Stanley analysts have downgraded ANZ to equalweight from overweight.
They cut their fiscal year 2018 margin forecast by around 5 basis points for the bank, for a couple of reasons.
Institutional banking remains competitive,and the expected margin recovery from re-balancing is not eventuating, it said.
In addition. ANZ gets less benefit than peers from home loan re-pricing,and may need to compete more aggressively to prevent market share loss.
Also, ANZ’s geographic and deposit mix reduces its leverage to lower funding costs, the Morgan Stanley analysts believe.
They said that they are no longer confident of a revenue rebound in fiscal 2018 “given margin headwinds, slowing housing loan growth and elevated first half 2017 markets income.”
Revenue forecast were cut by around 2 per cent and the analysts now expect another flattish year-on-year outcome in fiscal 2018.
“While we believe company-specific problems of 2016-17 have passed, our estimate of risk tendency confirms that ANZ still has the highest risk profile of the majors,and that the current gap to ‘normalised’ loss rates is actually greater than peers.
“We also think it has more exposure to ‘pockets of weakness’,and our AlphaWise survey indicates that its mortgage customers have the highest average DTI ratios.
“We believe the cost out story extends beyond the restructuring of the Institutional bank in 2016-17,and that an around $9 billion group cost base is achievable in FY19E, assuming underlying expense growth of around 3 per cent is offset by cost savings,” they said.
In the absence of further noncore asset sales, they don’t expect a buyback until 2020.
“ANZ has re-rated since CEO Shayne Elliott announced decisive steps to ‘create a simpler,better capitalised and more agile bank.’ The price to earnings multiple is now near the top end of its post-2009 range and the discount to peers has narrowed to just around 3 per cent. which is line with the long-run average.”