Why this top broker thinks Australia and New Zealand Banking Group (ASX:ANZ) will underperform in short-term

The share price of Australia and New Zealand Banking Group (ASX: ANZ) is tumbling but there could be more pain in store for shareholders as Morgan Stanley is predicting that the stock will underperform over the next 60 days.

This could mean ANZ Bank will lose its lead over its peers as it’s the best performer among the big bank stocks with a fall of 11% since the start of the year compared to the 15% drop by National Australia Bank Ltd. (ASX: NAB), 16% decline by Westpac Banking Corp (ASX: WBC) and 17% plunge by Commonwealth Bank of Australia (ASX: CBA).

However, that may be cold comfort as ANZ Bank is still 8 percentage points under the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index over the period.

Its underperformance is likely to soon widen if Morgan Stanley is on the money. The broker formed this bearish view following the bank’s Friday announcement that it is extending the timeframe for its existing $3 billion share buyback program by 12 months.

ANZ Bank is one of the three big banks that’s preparing to hand in its full-year profit results over the next few weeks and those hoping for some good news are likely to be disappointed.

“ANZ has a strong capital position and a commitment to lower costs, but we believe these investment characteristics are well understood, revenue headwinds are getting worse and there is risk of disappointment at the upcoming FY18E result,” said Morgan Stanley.

“What’s more, the Oct. 19 announcement that it plans to extend the time frame to complete the existing buyback by 12 months raises questions about the size and timing of a further A$2.5bn buyback included in our forecasts.”

Morgan Stanley believes there is a 60% to 70% chance that ANZ shares will underperform over the next two months although the broker is keeping its “equal-weight” recommendation on the stock with a price target of $26.60 a share.

ANZ Bank has been the least affected big bank by the Banking Royal Commission, which triggered a painful de-rating of the sector.

Some would argue that this makes ANZ the best big bank stock to buy in the current market, and while I do hold a small position in the stock, I wouldn’t be looking to top up my holding when the decline in house prices are still accelerating.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, 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.

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