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!

[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

[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	$3,646m	34%	$400,953m	0.9%	$8,909m	13.9%
2012	$1,198m	$4,538m	26%	$432,361m	1.0%	$9,192m	13%
2013	$1,188m	$4,354m	27%	$487,618m	0.9%	$10,265	11.6%
2014	$986m	$3,933m	25%	$525,685m	0.7%	$11,294m	8.7%
2015	$1,179m	$4,017m	29%	$574,255m	0.7%	$11,712m	10.1%

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	$4,414m	22%	$501,023m	0.9%	$9,507m	10.4%
2012	$1,212m	$4,241m	29%	$518,686m	0.8%	$10,026m	12.0%
2013	$847m	$3,949m	21%	$540,113m	0.7%	$10,619	8.0%
2014	$650m	$3,481m	19%	$588,824m	0.6%	$11,400m	5.7%
2015	$753m	$3,332m	23%	$626,648m	0.5%	$12,109m	6.2%

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	$27.426m	21%	$2,105.702m	1.3%	$29.337m	19%
2013	$22.527m	$50.491m	45%	$2,060.867m	2.4%	$36.540	62%
2014	$5.895m	$16.381m	36%	$2,623.767m	0.6%	$57.416m	10%
2015	$12.105m	$25.412m	48%	$2,887.482m	0.9%	$76.304m	16%

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

[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 Category	ANZ 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	$39,610m	4.7%	$22,671m	2.9%	$576.577m	17.8%
Business and Property Services	$51,000m	6.1%	$74,793m	9.7%	$396.939m	12.2%
Construction	$7,609m	0.9%	$7,682m	1.0%
Entertainment, Leisure and Tourism	$11,797m	1.4%	$8,416m	1.1%
Finance and insurance	$230,710m	27.5%	$95,694m	12.4%	$377.318m	11.6%
Government and Local Authority	$52,524	6.2%	$75,936m	9.9%
Manufacturing	$34,432m	4.1%	$18,501m	2.4%	$93.779m	2.9%
Personal lending	$330,925m	39.5%	$419,764m	54.5%	$1,397.003m	43.1%
Electricity, Gas and Water Supplies	$9,795m	1.2%	$7,445m	1.0%
Retail & Wholesale trade	$38,528m	4.6%	$22,774m	3.0%	$276.527m	8.5%
Transport and storage	$14,783m	1.8%	$13,895m	1.8%	$20.068m	0.6%
Other	$16,455m	2.0%	$2,358m	0.3%	$102.317m	3.2%
Total	$838,248m	100%	$769,929m	100%	$3,240.468m	100%

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

[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.



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.