The National Australia Bank Ltd (ASX: NAB) share price followed the market lower on Thursday and ended the day down 0.6% at $27.81.
Unfortunately for shareholders, one leading broker believes that this could be the start of further declines and has tipped its shares to sink lower.
What has the broker said?
According to a note out of Credit Suisse, its analysts have retained their underperform rating and $25.50 price target on the banking giant's shares ahead of its trading update release later this month.
The broker's price target implies potential downside of over 8% from the current National Australia Bank share price.
Credit Suisse has held firm with its bearish stance due to its expectations that the bank will report a third quarter cash profit of $1.6 billion. This will be 2.5% lower than the average quarterly result during the first two quarters
The broker believes this soft result will be driven by weaker margins, increased costs, and flat revenue.
In addition to this, the broker suspects that National Australia Bank will report a decline in its CET1 ratio. Credit Suisse's analysts have forecast a CET1 ratio decline from 10.2% to 10% due to the payment of its interim dividend.
Should you sell your shares?
While I do think that Credit Suisse makes some fair points, I wouldn't be a seller of its shares if I owned them. After all, they are trading on lower than average multiples at present and offer shareholders a generous fully franked dividend. I think this makes it worth sticking with the bank.
However, I do see more value for non-shareholders in the shares of Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) right now. Which could make them worth a look if you don't already have exposure to the banking sector.
