Many 'mum and dad' investors will have lost a lot of money on paper if they bought shares in the big banks over the last two years. In fact all of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are down by at least double-digit amounts over the period.
The banks have all faced higher funding, compliance, and regulatory costs, with house prices also beginning to slide over the past 12 months.
Therefore many professional fund managers and market commentators have turned negative on the banks and rate them as a 'sell' or 'hold'.
However, one of the industry's most famous research houses in Goldman Sachs rates two of the big banks as a buy according to a November 14 research note.
It thinks Westpac is a buy heading into its FY 2019 and has a $32.82 12 month share price target on it, but it's not Goldmans' favourite big bank share to buy this week.
Goldmans' number one pick is ANZ Bank. Here's why.
ANZ has seen its share price fall 14% over just 2018, but Goldmans thinks this may be a buying opportunity because ANZ is capable of pulling three profit "growth levers" simultaneously over its FY 2019 that ends September 30 2019.
Let's take a look at them.
First, it thinks ANZ is best positioned to deliver further "absolute cost reductions" as variable staff remuneration is held back, with expenses already down 1.5% over FY 2018.
Second, Goldmans thinks ANZ's $3 billion share buyback scheme will support earnings per share in FY 2019. It forecasts "a reduction in share count as it "deploys surplus capital via buybacks (we forecast a further $1b across 2H19 / 1H20E)". If this forecast is accurate it's likely to support ANZ's share price in 2019.
Third, Goldmans is forecasting lower BDD (bad and doubtful debt) charges over FY 2019 for ANZ "given the structural shift in the portfolio". ANZ has been on record as recently cutting back on higher risk investor and interest only home loan lending to focus more on owner / occupier lending. Goldmans thinks this will be a positive in the year ahead.
It has a $31.52 12-month price target on ANZ shares, which would suggest a return of around 20% plus significant dividends if Goldmans is on the money.
However, investors should be aware considerable risks and headwinds still face the banking sector into 2019.
