Australia and New Zealand Banking Group's (ASX: ANZ) share price is rising ahead of the bank's full-year results tomorrow.
It's a nervous time for shareholders as what the bank reveals tomorrow will determine if the stock has hit a bottom since closing at a two-year low of $24.80 last week.
The stock is currently trading 0.5% higher at $25.33 as the Commonwealth Bank of Australia (ASX: CBA) share price and the Westpac Banking Corp (ASX: WBC) share price gained around 1%.
It's only the National Australia Bank Ltd. (ASX: NAB) share price that's trading just below breakeven even as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index added 0.5% in after lunch trade.
I'll talk about NAB's share price weakness later as ANZ Bank is the one in the spotlight as it will kick off the bank reporting season (only CBA won't be reporting as it has already done so in August).
It's just as well that ANZ Bank is going first as its results are arguably the least risky of the three. Here are some key things that brokers will be watching for:
- ANZ Bank is probably the only one of the three that's able to do a capital return and that's the biggest chance for the bank to give its share price a kick
- Net interest margins (NIM) will be closely scrutinised for signs of further funding pressure
- Management's ability to cut costs will be a key driver for margins and profits given the subdued lending environment
- Bad debt provisioning could tick up although brokers are divided on this
- Bank profitability had been bolstered in the past several reporting seasons from lower provisioning but the accelerating drop in home prices leads me to believe we won't get another free earnings kick
- News on further customer remediation and write-downs following the $697 million in charges the bank announced early this month
- Updates on its asset sales
The good news for income investors is that ANZ Bank is unlikely to cut its 80 cents a share final dividend although I don't think yield alone is enough to stop the stock from testing new lows.
Meanwhile, NAB's share price underperformance is probably due to worries about its profit growth – or lack of.
Macquarie Group Ltd (ASX: MQG) is forecasting underlying profit growth of 2% to 4% for Westpac and ANZ Bank but is tipping a circa 2% drop for NAB due to rising operating costs.
There are also more doubts around NAB's ability to sustain its dividend and that can't be helping the stock.
I wouldn't be buying any bank shares ahead of the result despite arguments that the de-rating in the sector reflects all the bad news afflicting the sector.
The thing is, we don't know if there will be new bad news from the property market and the impact of falling house prices on over-leveraged consumers.
Look for value elsewhere.
