Review: Is it time to SELL bank shares?

It’s been a very busy week for Australia’s major banks.

Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Macquarie Group Ltd (ASX: MQG) reported results this week.

Here’s a quick review of each.


Westpac reported its results first. On Monday, its interim financial report showed a 5% increase in revenue and 3% rise in profit. The bank kept its dividend flat as some profitability measures slipped, and assets grew firmly. However, a cut to operating expenses kept profit figures above water. Impairment charges jumped 96%, while its outlook for credit markets was “patchy”.

ANZ Banking Group

ANZ reported half-year profit down 24% as revenue was flat at $10.25 billion. Total loans and customer deposits decreased. Credit impairment charges for bad loans rose 83% and its dividend was cut 7% to 80 cents. It also said the full-year dividend, which is normally higher than the interim dividend, is likely to be the same (implying a 19% deduction).


National Australia Bank’s results were perhaps a little more upbeat. Despite reporting a statutory net loss of $1.74 billion, underlying cash earnings came in at $3.31 billion – up 6.5%. With credit impairment charges falling over the prior corresponding half-year, the interim dividend was held flat at 99 cents per share. NAB said it is contemplating raising more capital to boost its balance sheet by issuing a new ASX-listed capital security.

Macquarie Group

Macquarie, which is more of an investment bank opposed to a retail bank, today reported its full-year results showing a 9.4% rise in revenue and 28% jump in profit. A final dividend of $2.40 is payable, up from $2 last year. The bank said its outlook remains upbeat, though the short-term presents challenges.

Is it time to SELL bank shares?

The recent downtrend in bank share prices will no doubt have some shareholders spooked.

Source: Google Finance

Source: Google Finance

However, judging by their moves this week, the market may have actually priced in worse results than what was delivered. Personally, however, I think there were a few subtle themes appearing across most of the banks which must be monitored closely.

Indeed, while the rise in impairments may be concentrated on the resources sector (bearing in mind impairment charges have only come back towards cyclical averages for some banks) investors must monitor credit risk closely.

Moreover, the regulatory risk remains evident. While there are arguments for and against bank dividends remaining under pressure in the immediate future, if APRA continues to raise the bar on bank regulation (which appears likely) don’t be surprised to see more pressure applied to share prices.

In summary, while I wouldn’t rush out to sell my shares in the banks, I would certainly sell some if I were overexposed to the financial and property sectors (not just in my share portfolio but across all assets including, for example, investment property). If I were to buy one bank share at this time, for the long-term it’d be Macquarie.

Rather than buy bank shares, I'm looking for other - faster growing - dividend shares to add to my portfolio, like the one The Motley Fool's expert analysts hand-picked as their best dividend share idea for 2016.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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