Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
Current ANZ shareholders might answer yes to that question, but I think it's worth thinking about.
The ANZ share price has risen by 19% since the start of the year, which is quite amazing for such a large business like ANZ. There are many contributing reasons for ANZ's gains.
The local and global share markets have recovered since the lows of Christmas 2018.
The Royal Commission didn't turn out so bad for the major banks of ANZ, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).
The Federal Election win for the Liberals was a surprise and will likely be more positive for the banks than if Labor were in charge.
The APRA move to reduce the interest rate buffer for borrowers could get credit growth moving.
The RBA's interest rate cut may have helped to increase ANZ's net interest margin (NIM) a little because the bank didn't pass on the whole rate cut.
However, I'm not sure that ANZ is a buy at the current price. There are still a number of issues that could turn nasty like Australia's falling house prices which could continue to affect credit growth and rising mortgage arrears could lead to a material uptick in bad debts. One month of positive news does not simply reverse what's happened over the past year, particularly the arrears.
The unemployment rate continues to remain low, but it is a little higher than at the start of the year. If the unemployment percentage remains at 5.6% or below then Australia should be fine in my opinion, but it were to keep going higher than that then I would not be very confident about the bank's bad debt charges remaining low. People can't pay their mortgage if they don't have a job.
Foolish takeaway
ANZ is trading at 12x FY20's estimated earnings with a grossed-up dividend yield of 8%. Whilst I can understand investors reaching for yield with ANZ, I don't think the current price reflects the short to medium-term risks for ANZ.
