CBA vs ANZ shares: Which to buy and which to sell?

Which big four bank is the better buy right now?

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If you own Commonwealth Bank of Australia (ASX: CBA) shares, then you might want to read on.

That's because the team at Goldman Sachs believes you would get better returns by selling your holding and buying ANZ Group Holdings Ltd (ASX: ANZ) shares.

According to the note, Goldman's research shows that mortgage returns on equity (ROE) fell 25% in 2023 and it doesn't see a "path to a material recovery."

Housing lending returns have halved

Goldman highlights that it believes housing lending return on tangible equity (ROTE) in the banking sector has more than halved over the last decade. It said:

Our proprietary product profitability analysis has found that over the past decade, AU housing lending ROTE has more than halved, from 35-40% pre-FY15, to 18% in FY22 and then 14% in FY23. Furthermore, the returns' gap between AU housing lending and all other products was also at its lowest level in a decade in FY23.

Unfortunately, the broker isn't expecting this trend to improve any time soon. It adds:

When we consider the drivers of these returns' decline, we find that i) before 2023, higher capital requirements drove the entire decline in Australian housing lending ROTE, with ROAs actually slightly higher between FY18 and FY22; however, ii) in FY23, the 25% yoy fall in mortgage lending ROTE was entirely driven by lower ROAs, which in turn was driven by competitive impacts on NIMs. Our analysis suggests we should not expect these trends to reverse, without political risk.

Sell CBA shares and buy ANZ

In light of the above, the broker believes investors should be selling CBA shares and loading up on ANZ shares instead.

In respect to CBA, it has a sell rating and a $81.64 price target on its shares. This suggests a potential downside of 21%. Goldman commented:

CBA's consumer banking skew leaves its earnings more exposed to sector wide headwinds, including intense mortgage and deposit competition, and adverse impacts from households experiencing elevated interest burdens from higher interest rates.

Commenting on ANZ, it adds:

We like ANZ given i) the FY23 result provided further evidence of the improving profitability of its Institutional business and in particular we note its Transaction Banking profits have reached an all-time high, while also with improved ROE.

Goldman has a buy rating and a $26.66 price target on ANZ's shares. This implies a potential upside of 9.5% for investors.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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