Could Australia and New Zealand Banking Group (ASX: ANZ) be Australia's best bank today?
Although I'm generally bearish on the banks, I can see that there have been a few things going for ANZ in the last 12 months:
- Shayne Elliott replaced the former CEO Mike Smith on 1 January 2016
- In July 2016, the former Google Managing Director (Australia and New Zealand), Ms Maile Carnegie, joined the bank in her capacity as Group Executive – Digital Banking (a very good appointment in my view)
- On 27 July 2016, ANZ successfully defended a class action in the High Court, originally brought by IMF Bentham Ltd (ASX: IMF), over the legitimacy and fairness of its credit card late payment fees
- ANZ settled the long-running dispute with Pankaj and Radhika Oswal over the receivership and sale of Burrup Fertilisers in 2010
- In an effort to focus less on Asian retail banking, ANZ sold its Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore's DBS Bank
- ANZ settled with the Australian Competition and Consumer Commission in relation to conduct associated with the Non-Deliverable Forward FX contracts for the Malaysian Ringgit undertaken in Singapore in 2011. The result was a $9m penalty which could have been much worse for the bank without a settlement
- On the first working day of 2017, ANZ announces the strategic sale of its 20% shareholding in Shanghai Rural Commercial Bank (SRCB), an interest it's held since 26 September 2007. The price? A cool $1.838b (a compound annual growth rate of 9.4%)
It seems clear that the bank's Asian strategy is being wound back.
Is this a repudiation of Mike Smith or is it perhaps more of a reflection of Shayne Elliott's stamp of authority on ANZ's new strategic direction? Time will tell.
For now then, and for the reasons above, ANZ has a number of tailwinds behind it, but there are a few points to note:
- ANZ's 2016 cash profit fell 18% on the prior corresponding period
- ANZ shares are up almost 14% in the last year hence lowering the current value proposition
- Earnings-per-share growth will remain anaemic through to at least the end of the 2018 year, and
- Dividends are forecast to remain flat over the same period
If you're a dividend investor, the headline 5.1% fully-franked yield looks good, but you really need to consider growth in your underlying investment to do well and earn returns that are growing faster than inflation or wages growth.
Yes, I believe ANZ is the best bank of the big four to own today, but the question to ask then is not whether buying (or continuing to own) shares is a good idea, but whether or not there are better options on the ASX that can be considered for your portfolio.
This question is just as relevant if you own any of the other big three: National Australia Bank Ltd. (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).
If market flightiness, bank concentration in your portfolio or even the banks' subdued growth prospects are causing you concern, you should definitely have a close look at the report below. With 2017 looking to be another volatile year, you can't afford to go past receiving your free copy of "5 Dividend Shares for a Tanking Market".
