Why are the ANZ, CBA, Westpac and NAB share prices in freefall?

While ‘bank Boards are generally reluctant to cut dividends, given the emerging return profile, we see reduced ability to maintain status-quo.’

Lower rates. Likely lower earnings. Covid-19. Coronavirus. Potentially weaker dividends. Valuation issues.

Pick one issue – or five, at this point the specific number doesn’t really matter so much.

After all, the ASX 200 benchmark fell a staggering 420 points (7.36%) today as investors continued to dump risk assets at a rapid click. Mainstay blue-chips like CSL, BHP and Woolworths were hammered as the session wore on. Upstarts like Afterpay fared even worse: at one point down more than 20% during the session.

The Aussie benchmark is now down over 1,000 points in the last week and down about 1,800 points (or ~25%) in under a month. The bears are well and truly out of their cages now.

The Big Four banks of course got caught up in this latest bout of panic selling – their status quo as a safe-guard investment of sorts now well in tatters. Equities are equities, after all, a hefty dividend doesn't change that.

By today’s close, ANZ’s share price had collapsed 8.62%, CBA was dragged down 7.87%, Westpac crumbled 8.84% and NAB crashed 8.34%.

Looking at the below table, which examines the Big Four’s share price performance over the last five trading sessions, the picture comes off even bleaker.

ANZ, CBA, NAB and Westpac share prices compared

Ticker

Share price

Performance last 5 days

Dividend yield

ANZ

$18.26

-20.26%

8.02%

CBA

$63.11

-16.2%

6.29%

NAB

$18.13

-19.96%

8.39%

WBC

$17.74

-18.59%

8.94%

How to trade the big four banks

Do you think this bank selldown has gone too far or is just getting started? Trade accordingly. You can go LONG or SHORT on any of the Big Four banks with IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Westpac using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Westpac’ or ‘WBC’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The analyst take & bank dividends

On Monday, Macquarie Wealth Management reiterated its bearish stance on Australia’s Big Four banks. Here, the investment firm noted that it expected bank earnings and dividends to come under increasing pressure over the next few years.

‘Given the growing risk to earnings from lower rates and slowing economic activity […] flowing on from COVID-19, as well as structural challenges to longer-term bank profitability, we maintain our underweight view on the sector,’ Macquarie said.

All this comes after the RBA slashed the official cash rate by 25 basis points, to 0.5% last week. The banks, lacking the ‘required political capital to reprice their backbooks […] passed the entire rate reduction to customers.’

Good for customers, but bad for the banks!

As a result of that move, Macquarie analysts revised their earnings forecasts of the majors down, ‘leading to downgrades of 1-2% in FY20, 3-4% in FY21 and 4-5% in FY22,' it was noted.

Moreover, and likely of keen interest to income-focused investors, the investment bank posited that it expected dividend cuts across the Big Four over the next few fiscal years.

Here, Macquarie said that although ‘bank Boards are generally reluctant to cut dividends, given the emerging return profile, we see reduced ability to maintain status-quo.’

Looking at the specifics from a yield perspective, the investment bank now expects ANZ’s FY20-22 dividend yield to remain stable at 6.0%; CBA’s yield to come in at 5.6% in FY20-21 (before declining to 5.2% in FY22); NAB's yield to sit at 6.6% (before declining to 6.1% in FY21 and FY22); and finally, WBC's dividend yield is expected to reach a heady 7.2% in FY20, before declining to 6.3% across both FY21 and FY22.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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