CBA, NAB, ANZ and Westpac tipped for another year of vastly different returns
Morgan Stanley flags major bank returns could diverge by 20% in 2026, with ANZ poised for rare repeat win and CBA facing headwinds.
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KEY POINTS
- The performance gap between best and worst major banks has exceeded 10% in 23 of the past 25 years, with 2025 seeing a roughly 25% spread.
- ANZ could achieve its first consecutive year as top performer since 2001, supported by credible strategy, valuation discount and lower vulnerability to RBA policy.
- CBA risks second year of underperformance due to stronger competition, elevated 45 per cent premium to peers and exhausted flow of funds benefit.
Morgan Stanley says investors should prepare for another year of divergent returns among Australia's major banks, with the gap between the best and worst performers potentially reaching 20% or more.
The investment bank's analysis of 25 years of data shows the difference between the top and bottom performing major banks exceeded 10% in 23 of those years, including 2025 when ANZ outperformed Commonwealth Bank by roughly 25%.
Total returns for 2025: Commonwealth Bank (orange), NAB (green), Westpac (red) and ANZ (blue) | Source: TradingView
This historical pattern challenges the common assumption that the major banks will move in tandem given their similar business models. Morgan Stanley expects these meaningful differences to persist in 2026 as the banks sit at different stages of their management and strategic cycles.
ANZ positioned for rare back-to-back wins
ANZ (ASX: ANZ) could become the best performing major bank for a second consecutive year, a feat not achieved since 2001. The bank has historically struggled to maintain momentum, becoming the worst performer the year after topping the leaderboard over the past 15 years.
However, Morgan Stanley identifies four factors that could break this pattern.
The new strategy is comprehensive and credible
Its price-to-earnings discounts to NAB and WBC are still well below their 10-year averages.
WBC's strong share price performance in 2025 shows that investors are prepared to keep backing a turnaround story
It's the least vulnerable to an extended cash rate pause or hikes by the RBA
The combination of strategic clarity and valuation support could provide ANZ with the foundation for sustained outperformance this year.
CBA faces headwinds after 2025 underperformance
Commonwealth Bank (ASX: CBA) could underperform for a second straight year after lagging the ASX 200 in 2025 for the first time since 2019.
CBA was also the worst performing major in 2025, its first time at the bottom since 2016.
Morgan Stanley outlines four risks to CBA's relative performance.
Its earnings outlook is now being impacted by more robust performance from its key competitors in retail and business banking
A cost reduction narrative and/or new capital management initiatives seem unlikely
Its price-to-earnings multiple (~25x) is only slightly lower than it was at the start of 2025 (~25.5x) and its premium to peers of ~45% is still elevated
The 'flow of funds' benefit has run its course
Strategy drives performance
The differing trajectories reflect where each bank sits in its strategic cycle. While some banks are executing fresh strategies with new management, others are in mature phases of their current plans.
This creates varying investor expectations around earnings growth, cost management and return on equity improvements. The market appears increasingly willing to differentiate between the majors based on these execution factors rather than treating them as a homogeneous block.
For investors, stock selection clearly matters within the banking sector. The data shows that simply owning the bank sector through equal weighting has historically meant missing significant relative returns, with spreads of 20% or more relatively common.
