2 reasons why CBA, NAB, ANZ and Westpac shares are selling off
Trading updates from Westpac and Bendigo Bank has pulled the entire financials sector lower on Monday. Here's what you need to know.
Source: iStock
Mentioned
KEY POINTS
- The ASX 200 Financials Index fell 1.26%, with major banks under pressure after weak earnings and margin updates from Westpac and Bendigo Bank
- Westpac reported a 6% decline in net interest income and softer margins, sending its shares down as much as 6.2%
- Bendigo Bank shares plunged 16% after reporting net interest margins 60 bps below expectations, citing higher deposit and funding costs
Aussie banks were a major outlier on Monday, with the S&P/ASX 200 Financials Index down 1.26%, well beyond the broader market's 0.4% decline. Commonwealth Bank, Westpac, and ANZ shares are all down around 1.0%, pressured by weak updates from Westpac and Bendigo Bank
Westpac (ASX: WBC) reported its first quarter results, which flagged slightly weaker-than-expected earnings and margins. The most important metrics include:
Unaudited net profit increased 3% year-on-year to $1.9 billion (excluding notable items)
Net interest income down 6% to $4.5 billion
Core net interest margins down 2 bps to 1.81%
"At first glance, Westpac's first quarter trading update appears slightly soft relative to market and UBS expectations, especially on the revenue line, with the core net interest margin down 4 basis points quarter on quarter," UBS analysts said in a note on Monday
The market reacted negatively to the news, with Westpac shares opening 2.7% lower and falling as much as 6.2% around noon.
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Westpac 12-month price chart (Source: Market Index)
Bendigo & Adelaide Bank (ASX: BEN) shares tumbled 16% after the company reported unexpectedly poor net interest margins for the first-half. Some of the key numbers from the result include:
Cash earnings after tax down 1.1% to $265.2 million or 6.7% below consensus expectations of $284.5 million
Net income was impacted by higher deposit costs and wholesale funding costs
Net interest margin up 5 bps to 1.88% or 60 bps below consensus expectations of 1.94%
And some of the key takeaways from management include:
Operating expenses up 8.3% to $598.4 million, reflecting inflation pressures and previously flagged increase in investment spend
Mindful of challenges to Victoria economy, arrears slightly higher than other states but has no material impact on credit costs
Expect growth in mortgages to be above system
Bendigo had been one of the best-performing banking stocks, gaining around 35% over the past year before Monday’s selloff. However, much of that rally had already priced in expectations of stable net interest margins, and the weaker-than-expected results triggered a sharp correction.
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Bendigo & Adelaide Bank 12-month price chart (Source: Market Index)
Putting it all together
The financials sector tends to move in tandem, with banks often taking cues from their peers' results. The weaker-than-expected margins from Westpac and Bendigo Bank highlight potential headwinds for the broader industry.
