2 reasons why CBA, NAB, ANZ and Westpac shares are selling off

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.

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.

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.