Shares in the country's fourth largest bank, Australia and New Zealand Banking Group (ASX: ANZ), fell as much as 4.3% today following a raft of analyst downgrades in the wake of its full-year results yesterday.
Here're five key takeaways from ANZ's performance in the year ended 30 September 2015, versus the same period last year:
- Cash profit rose 1% to $7,216 million
- A final dividend of 95 cents per share was declared, taking the full-year payout to 181 cents – up 2%
- Net interest margin fell sharply from 2.13% to 2.04%
- Impairment for bad and doubtful debts rose 20% to $1.2 billion
- Outgoing CEO Mike Smith said, "There are significant opportunities for ANZ, however lower economic growth, intense competition, the growing cost of regulation and market volatility present headwinds for all banks."
Consequently, analysts have moved to lower their investment recommendations and/or price target on ANZ shares.
- Macquarie lowered its price target 5.3% to $31.43
- Credit Suisse downgraded ANZ from Outperform to Neutral
- UBS cut its fair value estimate to $29, down 12%
Buy, Hold or Sell
ANZ has enjoyed great asset (loan), revenue and profit growth over the past two decades. This was reflected in a rewarding share price rise for investors.
However, against a backdrop of a slowing economy, analysts are growing concerned that shortly the major banks could see profit margins fall and bad debt rise.
For some time, I've avoided the banks for these reasons. Indeed, Australian banks are heavily leveraged to the market cycle thanks to their lack of diversification and control of the mortgage market.
Therefore, unless you're very bullish on the economy over the next three to five years, my advice is to avoid buying all bank stocks at this time. That includes ANZ, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).
