Are the banks a sell?

The recent 1H18 results released by Australian and New Zealand Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) were disappointing according to a report by UBS. The outlook ahead is undoubtedly tough, notwithstanding the Royal Commission into banking. 1H18 earnings per share for the big four fell an average 3.7%, due to slowing credit growth, and rising costs from National Australia Bank’s restructuring and Commonwealth Bank’s provisions for anti-money laundering fines and compliance. Stressed exposures were up as well as increasing number of mortgages in arrears. On the positive side, there was improved asset quality with less corporate losses and ongoing recoveries, and net interest margins expanded due to mortgage repricing.

UBS says that management commentary on the outlook was more cautious than has been seen for a long time. Average dividend yield for the big four of 6.2% is hard to ignore and the big four average valuation is not expensive at 13x FY19 earnings, but the increasing risks lead to UBS taking a very cautious view.

UBS’s reasons to be cautious on the banks are:

  • Tighter credit standards
  • Slower credit growth
  • Higher funding costs
  • Lower net interest margins due to competition and resetting of interest only loans
  • Rising legal and compliance costs.

Of the four major banks, Westpac is trading on the lowest forward price-earnings-ratio (PER) of 12.3x at the time of writing, and is paying an annual dividend yield of 6.4%. While both National Australia Bank and Commonwealth Bank are trading on a forward PER of 12.6x and annual dividend yield of 7% and 6.1%, respectively, while ANZ is trading on a forward PER of 13x with an annual dividend yield of 5.7%.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Rosemary Steinfort owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!