The Australia and New Zealand Banking Group (ASX: ANZ) share price has started the week on a disappointing note.
In afternoon trade the banking giant's shares are down over 3% to $15.51.
Why is the ANZ share price sinking lower?
The ANZ share price has come under pressure today amid weakness in the banking sector following the surprise half year result release by rival National Australia Bank Ltd (ASX: NAB).
NAB brought forward its result release from May 7 and revealed a 51% decline in cash earnings to $1,436 million. This was driven partly by credit impairment charges increasing 158.6% to $1,161 million during the half.
These charges include $828 million of additional collective provision forward looking adjustments, of which $807 million is a top-up to the economic adjustment to reflect potential COVID-19 impacts.
The bank also cut its dividend materially from 83 cents per share to 30 cents per share. Though, with many speculating that no dividend would be paid, this seems to be a reasonably good result for shareholders.
ANZ will be the next bank to release its results and investors are no doubt nervous about what it will report. Ahead of the release on Thursday, I thought I would see what the market is expecting from the bank.
What is the market expecting from ANZ?
According to a note out of Goldman Sachs, it expects ANZ to report cash earnings from continuing operations of $2,193 million. This will be a 39% decline on the prior corresponding period.
On a per share basis, its analysts have pencilled in cash earnings of 75.5 cents per share. This represents a 36% decline on the same period last year.
Goldman Sachs isn't expecting ANZ to declare an interim dividend. Though, it also thought the same about NAB. I suspect a similarly reduced dividend might actually be declared by ANZ on Thursday.
Despite these declines and probable dividend cuts, the broker has retained its buy rating and has a $17.87 price target on its shares.
Goldman commented: "We think ANZ is well-placed to face the deteriorating revenue environment via a more aggressive approach to its cost base. ANZ performance on costs in recent years is superior to peers and management remain committed to absolute cost reductions and a cost base of c.A$8 bn by FY22E. Given we do not reflect this in our forecasts currently, we note that if ANZ can get its cost base down to A$8 bn within this time frame, it would represent 5% upside to our current FY22E cash earnings."
The broker isn't expecting a capital raising. Though, that could of course now change following NAB's move today.
It said: "ANZ is relatively better capitalised and with the timing of the implementation of the NZ capital rules recently being extended, we think ANZ is well-placed to deal with the risk weighted asset inflation we expect the sector to be faced with over the next three halves."
Should you invest?
I think ANZ looks attractive at the current level, though it might be prudent to wait for its results on Thursday before making a move.
In the meantime, I think the pullback in the Commonwealth Bank of Australia (ASX: CBA) share price on Monday is a buying opportunity for patient investors with limited exposure to the sector.
