Australia's 5 biggest banks start reporting tomorrow. Here's what you need to know

This week is a huge week. Not just because it's month-end and month-start in the same week, or that it's Federal Reserve decision week, or that two mega-cap tech firms are reporting results. This week is also interesting because Big Bank earnings season kicks off tomorrow and runs for an entire week. Depending on the institution that you have exposure to, it may either be half-yearly results, full-year results (Macquarie), or a third-quarter trading update (Commonwealth Bank).

So, what should you be expecting? In two separate notes, Citi and Morgan Stanley have compiled their thoughts on what to watch out for as five firms, which account for more than 20% of the index's weighting, hand down their numbers.

First things first...

Let's go through the expectations from each broker for each of the five results. All numbers are in Australian dollars.

National Australia Bank (ASX: NAB) - 2 May

Citi estimates: 1H24 Cash NPAT of $3.545 billion, Basic cash Earnings Per Share (EPS) of 114¢ per share, half-yearly dividend of 84¢

Morgan Stanley estimates: 1H Cash NPAT of $3.558 billion, Basic cash EPS of 115¢ per share, half-yearly dividend of 84¢

Macquarie Group (ASX: MQG) - 3 May

Citi estimates: FY24 NPAT of $3.67 billion, Basic EPS of $9.66 per share, full-year dividend of $6.30 per share

We were not able to find Morgan Stanley's estimates for MQG's earnings report but the broker does have an OVERWEIGHT towards the stock in its model portfolio and has a street-high price target of $225.

Westpac (ASX: WBC) - 6 May

Citi estimates: 1H24 Cash NPAT of $3.3 billion, Basic cash EPS of 95¢ per share, half-yearly dividend of 72¢

Morgan Stanley estimates: 1H24 Cash NPAT of $3.467 billion, basic cash EPS of 99¢ per share, half-yearly dividend of 72¢

ANZ (ASX: ANZ) - 7 May

Citi estimates: 1H24 Cash NPAT of $3.57 billion, basic cash EPS of 119¢ per share, half-yearly dividend of 83¢

Morgan Stanley estimates: 1H24 Cash NPAT of $3.57 billion, basic cash EPS of 116¢ per share, half-yearly dividend of 81¢

Commonwealth Bank (ASX: CBA) - 9 May

Citi: "For the 3Q24 trading update, we forecast cash earnings of around $2.4 billion, marginally ahead of consensus. Compositionally, we are about 1% below consensus on revenue (deposit pressures), but this is mitigated at the bottom line by lower bad debts."

Morgan Stanley: "In 3Q24, we forecast cash profit ex notable items to be down around 6% on the 1H24 quarterly average to $2.36 billion, and we forecast pre-provision profit to fall about 5% to $3.64 billion."

The money lines...

Alongside the numbers, Citi and Morgan Stanley shared their views on how they are thinking thematically about the next week:

"Across the upcoming bank results, we are largely in-line with consensus and expect little earnings surprise," Citi analyst Brendan Sproules wrote to clients today.

"The recent strong inflation print emphasises the underlying economic resilience, high rates notwithstanding. The street is forecasting around 14 basis points of bad debts this half, despite recent peer results printing 4-9 basis points. With new impaired assets slow to normalise and very strong collective provisions, we query whether bank management teams will be able to justify the economic forecasts that sit behind the provisions, and whether some may come back in this upcoming reporting season."

Note that all the major banks are SELL-rated at Citi, but they did say that Westpac (ASX: WBC) is their preferred exposure. Citi has the lowest price target of the major brokers surveyed by FNArena for CBA and Macquarie Group and only downgraded the latter to sell last month.

For Morgan Stanley's Richard Wiles, it's a combination of buoyant sentiment and the fact that buybacks and margin opportunities are well priced.

"...There is too much optimism about the timing and size of RBA rate cuts and the implications for banks. In their view, trading multiples now reflect all the potential benefits of a soft landing and a less competitive environment. They also think loan growth will remain modest, margins won't rebound meaningfully, mortgage back book repricing is unlikely, expense growth will remain elevated, provision releases will be smaller and later than anticipated, and buybacks are well and truly in the price."

Key areas of focus for their team include:

1. Margin trends and outlook commentary

2. Loan growth trends

3. Elevated expense growth: "Management commentary is likely to be cautious on the cost growth outlook for FY24 and FY25."

4. Prospect of provision releases: "The majors have large provision buffers, but our team expects collective provisions to remain largely unchanged in the March quarter."

5. Ongoing capital management opportunities, including buybacks and dividends