ANZ vs WBC

[gonzo56]

Hey,
I was just wondering what thoughts are on investing in either of the two banks on NZX.
On DB, the depths are; WBC $29 and ANZ $35

Westpac shows better value PE wise compared to ANZ, though that could be due to due to the Asia expansion for ANZ and people willing to pay more...

What are your ideas?

[POSSUM THE CAT]

Gonso56 split your money and have some of each

[GTM 3442]

Gonso56 split your money and have some of each

Especially as they're both at 26.00 !

But no imputation credit.

[Aaron]

As far as valuing banks go I would have no idea but I'm trying to understand Technical analysis and wouldn't the indicators be telling you not to buy right at the moment.
Charts aside on a more fundamental basis isn't there some debate as to whether Aussie has a housing bubble and isn't overseas funding potentially going to become more expensive. What would these events do to the banks profitablity if they burst/occured.

[Phaedrus]

(1) Don't do it Gonzo! Hold on to your money. Markets are falling worldwide - ANZ and WBC along with the rest. Wait. Who knows how far they will fall. If you have a habit of buying downtrending stocks, break it!

(2) What's the difference? Tweedledum and Tweedledee. You may just as well toss a coin.

(3) Why on earth would you buy both? It's not as if you would be diversifying!

http://i602.photobucket.com/albums/tt102/PhaedrusPB/WBCanz.gif

[gonzo56]

Thanks Phaedrus, I did not buy. I would be happy with around $24 for WBC...
When it happens how can you tell if it is an uptrend, and not a small bounce back? Is it when its in combination with a positive market, or is it determined by the duration of any particular trend etc..?

[Phaedrus]

I would be happy (to buy WBC) at around $24... Well Gonzo, in my opinion it is not good to have a specific "buy" figure in mind. What you are trying to do is impose your aims/aspirations/wishes/hopes on the market. WBC is going to do what it is going to do, so you must to adapt to it. Your purchase plan must be flexible enough to accommodate market reality.
Scenario (1). WBC falls to $25, tracks sideways for a while, then starts rising - and keeps on rising. You have missed out on buying and feel bad.
Scenario (2) WBC falls to $24 and you buy. The shareprice continues falling, going right down to $19 before the downtrend reverses. You feel bad.
Scenario (3). You get impatient and buy now at $26 and the downtrend continues. You feel bad.
Scenario (4). WBC falls to $22 stays flat for a while then starts to rise. You buy at $23. You feel good.
Scenario (5). WBC eventually breaks above the trendline and/or moving average. You buy at $23. You feel good.


When it happens how can you tell.....Entire books are written on just that topic, Gonzo. To give you some idea of the most basic Technical Analysis, here are 2 simple charts. The simplest trend indicators are trendlines (red) and Moving averages (blue) The idea is to buy if/when price action breaks above either of these.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/WBCanz73.gif

More sophisticated systems would probably get you into these stocks a bit earlier but you need to learn to walk before you run. Keep it simple to start with.

[gonzo56]

Ok Phaedrus, thank you.
Figuring out chart patterns can be daunting; following the MA is nice and simple.
Cheers again.

[winner69]

Gonzo - even the experts can't agree which is the best OZ bank

http://www.thebull.com.au/articles/a/11935-big-four-aussie-banks---buy-or-sell.html

[gonzo56]

Thanks for the article. They all follow the index to a T in that graph. WBC looks like a solid option + better divs

[winner69]

Especially as they're both at 26.00 !

But no imputation credit.

P told Gonzo 'don't do it' .... and both a re now just over $22

CBA got a muted response from a $6b profit ... these still to report ... and the world not a happy place for punters at the moment .... so P advice at $22+ to gonzo would still be 'don't do it' .... probably

Interesting times for the aussie banks

[winner69]

Even though both ANZ and WBC shareprice lower than when gonzo first posted the latest earnings announcements point to ANZ being the better medium to long term bet

[sharer]

Even though both ANZ and WBC shareprice lower than when gonzo first posted the latest earnings announcements point to ANZ being the better medium to long term bet
Agree, in my case because i hope their longer term strategy to expand in asia will succeed.

[Snoopy]

Interesting times for the aussie banks


A further comparison on the two NZX listed Aussie Banks.

Figures represent all of the respective ANZ and WBC businesses and dollar amounts are $A.



ANZ


Annual Impaired Asset Expense (A)Total Impaired Asset Provision (B)(A)/(B)Net Receivables (impairment included)(B)/(C)EBT (before impaired asset exposure)(A)/(D)


2011$1,237m$3,646m34%$400,953m0.9%$8,909m13.9%


2012$1,198m$4,538m26%$432,361m1.0%$9,192m13%


2013$1,188m$4,354m27%$487,618m0.9%$10,26511.6%


2014$986m$3,933m25%$525,685m0.7%$11,294m8.7%


2015$1,179m$4,017m29%$574,255m0.7%$11,712m10.1%





WBC


Annual Impaired Asset Expense (A)Total Impaired Asset Provision (B)(A)/(B)Net Receivables (impairment included)(B)/(C)EBT (before impaired asset exposure)(A)/(D)


2011$993m$4,414m22%$501,023m0.9%$9,507m10.4%


2012$1,212m$4,241m29%$518,686m0.8%$10,026m12.0%


2013$847m$3,949m21%$540,113m0.7%$10,6198.0%


2014$650m$3,481m19%$588,824m0.6%$11,400m5.7%


2015$753m$3,332m23%$626,648m0.5%$12,109m6.2%



And just for good measure, I will throw in the equivalent table for Heartland bank, even though that bank is not strictly comparable.



Heartland Bank


Annual Impaired Asset Expense (A)Total Impaired Asset Provision (B)(A)/(B)Net Receivables (impairment included)(B)/(C)EBT (before impaired asset exposure)(A)/(D)


2012$5.642m$27.426m21%$2,105.702m1.3%$29.337m19%


2013$22.527m$50.491m45%$2,060.867m2.4%$36.54062%


2014$5.895m$16.381m36%$2,623.767m0.6%$57.416m10%


2015$12.105m$25.412m48%$2,887.482m0.9%$76.304m16%



Points I note.

1/ Westpac have significantly lower impaired receivables, compared to total receivables. Furthermore Westpac is experiencing a steady reduction in the annual impairment balance sheet disclosure that the others are not experiencing.

2/ Heartland have a significantly higher annual impairment charge, relative to the total balance sheet annual impairment provision. A function of operating in a riskier loan space?

3/ ANZs write offs with respect to earnings are rather greater than Westpacs.

SNOOPY

[h2so4]

Good news from ABC news today. So far this reporting season Aussie banks haven't been increasing their bad debt provisions. Those bankers are not stupid probably realise they overdid it a tad.

[Snoopy]

The following division of loans is how the ANZ bank in Australia segments them. Loan categories from other banks have been adjusted in some instances to fit into this ANZ model.



Loan CategoryANZ Loan Book FY2015 (gross)ANZ Loan Book FY2015 (%ge)WBC Loan Book FY2015 (gross)WBC Loan Book FY2015 (%ge)HBL Loan Book FY2015 (gross)HBL Loan Book FY2015 (%ge)


Agriculture, Forestry, Fishing and Mining$39,610m4.7%$22,671m2.9%$576.577m17.8%


Business and Property Services$51,000m6.1%$74,793m9.7%$396.939m12.2%


Construction$7,609m0.9%$7,682m1.0%


Entertainment, Leisure and Tourism$11,797m1.4%$8,416m1.1%


Finance and insurance$230,710m27.5%$95,694m12.4%$377.318m11.6%


Government and Local Authority$52,5246.2%$75,936m9.9%


Manufacturing$34,432m4.1%$18,501m2.4%$93.779m2.9%


Personal lending$330,925m39.5%$419,764m54.5%$1,397.003m43.1 %


Electricity, Gas and Water Supplies$9,795m1.2%$7,445m1.0%


Retail & Wholesale trade$38,528m4.6%$22,774m3.0%$276.527m8.5%


Transport and storage$14,783m1.8%$13,895m1.8%$20.068m0.6%


Other$16,455m2.0%$2,358m0.3%$102.317m3.2%


Total$838,248m100%$769,929m100%$3,240.468m100%



OK I have included Heartland because I know it has quite a few fans out there. It isn't really comparable as the loan bbok is less than 1/200th the size of ANZ or WBC. However, one thing to note is that in primary sector lending (agriculture, forestry, fishing and mining), in relative terms, the exposure of Heartland is five times that of a big Ozzie bank.
So accordingly Heartland is much more exposed to a primary sector downturn than the other two.

On page 11 of the WBC annual report this quote appears:

"Westpac has been underweight in the mining and mining services sector for some time."

The ANZ 'primary sector' exposure is significantly greater than WBC (4.7% vs 2.9%). But to say ANZ is 'overexposed' to mining and agriculture might be calling things too far. If anything ANZ are 'overexposed' to finance and insurance. A big chunk of that exposure (not shown on the table) is 'overseas' (which means outside of Australia and New Zealand in this context). Another bias in the ANZ Asian expansion is that Asian manufacturing loans outgross loans to Australian and New Zealand manufacturers combined. OTOH personal lending by ANZ is relatively much less in Asia.

From a Westpac perspective they are more into property and business loans, and also personal loans than ANZ.

What we have here between ANZ and WBC is two broadly similar companies, but with enough difference in emphasis to ensure that ANZ vs WBC is not quite the apples with apples comparison that some might think.

SNOOPY

[limmy]

WBC has a good earnings record.

[macduffy]

WBC has a good earnings record.

Yes, apart from that period in the late 80's/early 90's? when it looked for a while that they might have to be rescued by a takeover. A lot of very cheap rights around in the subsequent renounceable rights issue!

[Joshuatree]

Moodys have dropped 4 of 5 Aus banks from stable to negative outlook.Rating stayed the same ."expectation of a more challenging environment for the remainder of 2016 and beyond which could lead to a deterioration in their profit growth and asset quality etc.

Will the cost of lending go up and be passed on?

[Beagle]

Yes much like other banks here, good customers will be asked to fund sometimes reckless decisions banks have made chasing profit growth on some of their more risky lending.

[percy]

For fun go to www.chrislee.co.nz and then read this week's Taking Stock.
Interesting times for UK and European banks.

[huxley]

Interesting read - http://www.wsj.com/articles/hedge-funds-bet-against-australias-big-banks-in-record-numbers-1463943605

[percy]

In Chris Lee's book "The Billion Dollar Bonfire" there was a statement;
"Banks lend long,and borrow short."
Question.Do ANZ or WBC have 20,30,40 or 50 year bonds to match their mortgage lending.?
As property lending makes up a huge amount of their lending,is their real cause for concern,as their capital ratio is under 15%,but I would guess mortgage/property lending makes up over 75% of their lending portfolios..?

[Snoopy]

In Chris Lee's book "The Billion Dollar Bonfire" there was a statement;
"Banks lend long,and borrow short."
Question.Do ANZ or WBC have 20,30,40 or 50 year bonds to match their mortgage lending.?


No ANZ or WBC do not have have 20,30,40 or 50 year bonds to match their mortgage lending.
I'll pass that question on to Chris Lee who on page 36 of "The Billion Dollar Bonfire" explians why.

------

(South Canterbury Finance CEO Lachie) "Mcleod did not seem to understand the difference between finance company lenders and those who lend for the banks, Finance company lenders are not smarter than bank lenders. They are different.

Banks have a lower cost of funds, an immense level of savings deposits that are constant and therefore support liquidity, more capital and access to critical information. Banks can and always do borrow short and lend long. They can accommodate delays in repayment and can provide almost indefinite repayment terms for two obvious reasons.

1/ They have immense suns of deposit money in cheap short term savings accounts, only a small portion of which is ever recalled.
2/ They have access to inter-bank borrowing and access to the Reserve Bank, meaning that in normal circumstances they need not fear for being overdrawn.

( Note that neither of those two points apply to "Heartland (not a bank) Australia". )

Banks also have a wealth of information which gives them great power and control. Banks have much knowledge about sectorial problems, they have access to borrowers history and can act swiftly if a client is behaving unwisely. If a client has only enough credit to pay the bank or to meet some other commitment, the bank will stop that person's payment to an outside party and apply the available funds to its own loan."

-----



As property lending makes up a huge amount of their lending,is their real cause for concern,as their capital ratio is under 15%,but I would guess mortgage/property lending makes up over 75% of their lending portfolios..?


Taking the FY2019 figures:

For the ANZ 'Personal Loans' (which includes not just mortgage loans) made up:

$408,077m / $1,209,364m = 34% of all on and off balance sheet loans (AR2019 p158)

For Westpac 'Housing loans' made up;

$449,540m/ $1,034,734m = 43% of all on and off balance sheet loans (AR2019 p220)

SNOOPY

[percy]

Thanks Snoopy.
57% of all loans I would take would not include commercial property loans or rural mortgages.
So my guess at 75% may not be too far off the mark.

[Snoopy]

Thanks Snoopy.
57% of all loans I would take would not include commercial property loans or rural mortgages.
So my guess at 75% may not be too far off the mark.


Sorry Percy that 57% figure for the ANZ was using data from the wrong column. The actual figure is 34% (now corrected). The way the loans are segmented is a problem for assessing commercial land and buildings, because rural mortgages are lumped in with forestry fishing and mining. There is a similar problem with the likes of 'Retail Trade' (does that mean a commercial property or stock). Hard to be sure, but your 75% for all property looks high to me.

SNOOPY

[percy]

I know Aussie banks property lending is very high.
Just do not know how high.
Perhaps it is high enough for The NZ Reserve Bank to be concerned.?

[Snoopy]

I know Aussie banks property lending is very high.
Just do not know how high.
Perhaps it is high enough for The NZ Reserve Bank to be concerned.?


The Reserve Bank of NZ have no business with what the parent ANZ bank is doing in Australia, under Chairman David Gonski. OTOH they have every right to cast their opinion of subsidiary ANZ,NZ chaired by Sir John Key.

Adrian Orr would be right out of line if he said "David Gonski be Gonski"

OTOH "Sir John be gone", would slip off Adrian's tongue quite well,...

SNOOPY


"

[percy]

Yes it is The Aussie Banks' NZ subsidaries which are of concern to The NZ Reserve Bank of NZ,while their parents are The Australian Reserves Bank's concern.
Reserves Banks are keeping them busy..lol.

[percy]

From June 2018 article "How Australia's Banks became the world's biggest Property Addicts."
Australian banks' mortgages are equivalent to 80% of the economy.
Australian GDP................................A$1.73 T
Bank mortgages;
......................................CBA........A $418B
......................................WBC........A $406B
......................................ANZ......... A$258B
......................................NAB......... $A253B.

[Scrunch]

From June 2018 article "How Australia's Banks became the world's biggest Property Addicts."
Australian banks' mortgages are equivalent to 80% of the economy.
Australian GDP................................A$1.73 T
Bank mortgages;
......................................CBA........A $418B
......................................WBC........A $406B
......................................ANZ......... A$258B
......................................NAB......... $A253B.


However this is however substantially different from saying lending is 80% of value (so banks only have a 20% margin before value declines start impacting the security cover of loans). The link below states Australia has 10.4m residences. The estimated value of these is A$6.87 trillion (Sept 2019). This puts the average house at A$660k. The value of residential property is therefore 4x GDP.

https://www.abs.gov.au/ausstats/abs%40.nsf/mediareleasesbyCatalogue/6496B4739650C270CA2581F3000E3B4D?OpenDocument

The 2018 report below puts the value of residential loans at A$1.78 trillion. About 26% of the value of residential property is represented by mortgages, the other 74% is not. This doesn't seem excessive to me, but perhaps I'm missing something. On average, there is A$171k of lending against each house.

Factoring in that 45% of properties don't have a mortgage, the average mortgage increases to A$311k but this is still slighly under 50% of the average property value - again this doesn't appear excessive.
https://www.securitisation.com.au/Library/Credit%20Rating%20Agency/S&PGlobalRatings__AnOverviewOfAustraliasHousingMarke tAndResidentialMortgageBackedSecurities_Nov-21-2018.PDF

[percy]

We know the banks have also lent heavily on commercial and rural property..