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Money CBA, Westpac, ANZ and NAB are in for 'tougher times': UBS report

00:57  12 may  2018
00:57  12 may  2018 Source:   abc.net.au

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The royal commission, rising costs, and tighter lending conditions are some of the factors which led UBS to downgrade its ratings for Australia 's banks .

The ABC’s strength last night was despite the 7pm News dipping out of the national top 10 for a long time with 1.01 million national viewers. The royal commission, rising costs, and tighter lending conditions are some of the factors which led UBS to downgrade its ratings for Australia 's banks .Load

The big four banks have been downgraded with © Provided by ABC News The big four banks have been downgraded with "sell" and "neutral" ratings by UBS.

"Tougher times" are ahead for Australia's banking sector, according to UBS, with the spectre of the banking royal commission hanging over their shoulders, and their earnings likely to drop in the next few years.

The global investment bank described the first half results of the big four banks as "disappointing" in its report released on Friday.

It also remains "very cautious" in light of rising funding costs, and believes "the risk of a credit crunch is material".

Downgraded banks

Earnings per share (EPS) fell 3.7 per cent across the sector, dragged down by NAB's restructuring costs, in the order of $755 million, as it prepares to lay off 6,000 staff over three years due to technological disruption.

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But in the metrosSunrise scored one of its lowest five metro market figures for some time , 228,000, while Today stayed about where it The royal commission, rising costs, and tighter lending conditions are some of the factors which led UBS to downgrade its ratings for Australia 's banks .Load Error.

An analysis by UBS put the initial capital shortfall faced by Australia ’s big four banks at A.9bn (US.3bn). But it said this could increase to A.7bn assuming that mortgage risk ANZ , Westpac , CBA and NAB all issued statements saying they were well positioned to meet the requirements.

Aside from a sharp slowdown in credit growth, UBS also said the banking sector faced rising costs of 6.6 per cent in the first half — once again pointing the finger at NAB's restructuring.

The higher costs were also due to CBA setting aside $575 million for compliance and potential penalties arising out ofits alleged breach of anti-money laundering (AML) laws.

That's in addition to the banks' net interest margins (NIM) —or the difference between the bank's borrowing costs and the rate it lends — being pulled down from tighter lending standards, as more customers migrate from interest-only to principle-and-interest loans.

"Across the sector we downgraded forecasts [for EPS] by 1, 4, and 6 per cent over the next three years," wrote Jonathan Mott and Rachel Bentvelzen, the authors of the UBS report.

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THE likes of ANZ , Westpac and CBA are being shunned by fussy customers. Treasurer Scott Morrison announced the probe in May, saying at the time that “the Government is taking action to Bank kept billing dead people. PM’s billion gift to CommBank. CBA , AMP report big profit drops.

The coalition has introduced more funding for regulators, tougher penalties for errant bankers and a Recommended. ANZ sacks banker over sexual harassment. CBA reshapes board as money laundering scandal bites. UBS said in a note the inquiry would be expensive and a distraction for the financial sector Regulatory action against Australian banks . ANZ , Westpac and NAB — rate rigging.

"Risks to our forecasts remain skewed to the downside especially as credit conditions continue to tighten and the federal election approaches (likely April/May 2019)."

Despite downgrading every bank, UBS noted there were some positives in the first-half results. Namely, banking sector revenue growing by 1.7 per cent, and NIM rising by 2 basis points (+0.02pc).

To sell, or not to sell

In the year to date, there have been steep losses in the share market for CBA (-11.8pc), Westpac (-4.8pc), ANZ (-1.3pc) and NAB (-3.7pc).

UBS slapped Westpac and ANZ with "sell" ratings, while CBA and ANZ got off better with "neutral" ratings.

It noted Westpac's first-half results benefited from its total revenue per share gaining 2.5 per cent, driven by a mortgage repricing in June last year, which boosted NIM by 7 basis points (+0.07pc).

But UBS had doubts about the quality of Westpac's assets, first raised a fortnight ago.

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Picture: iStockSource:istock. HOW many times have you covered an expense for a mate — take dinner, for example — and simply had them transfer you their share? CBA , AMP report big profit drops. .6 trillion ‘operating in darkness’. Aussie’s ‘multibillion-dollar idea’.

It has also moved markets with shares in Westpac slumping 4 per cent on Thursday when a UBS ANZ and NAB declined to comment while Westpac was not immediately available to comment. David Murray, a former chief executive of CBA and author of a government commissioned report into

This was in light of Westpac's poor home lending practices, in APRA's Targeted Review,revealed publicly at the royal commission.

NAB's first-half results were "subdued" on the other hand, with revenue per share down 0.3 per cent, and loan growth at just 1 per cent.

However, NAB's earnings per share plunged by a sharp 18.5 per cent, given its substantial restructuring costs.

"Messy" was how ANZ's first-half results were described — though its net profit surged 14 per cent to $3.3 billion.

"While ANZ's costs fell on an absolute basis, there were no efficiency gains on a per share basis."

UBS found CBA's first-half result to be "reasonable", with its net profit beating expectations, and revenue per share gaining 4.6 per cent.

But the revenue growth was eroded by CBA's $200 million provision for the royal commission legal costs, and $375 million for potential AML fines.

Of course, there is no guarantee that AUSTRAC will settle its case against the nation's biggest bank for that amount, or whether there will indeed be a settlement.

Australia's Westpac appoints new customer relations head .
Westpac has created a new group executive position to help the bank set high service standards and resolve customer issues. The role of group executive, customer and corporate relations, will be filled by Carolyn McCann, who joined Westpac in 2013 and currently serves as its general manager, corporate affairs and sustainability. Her appointment comes as Australia's financial sector battles to rebuild public trust following revelations of widespread misconduct at an independent inquiry.

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