Bank results might be worse than you thought

New APRA figures on recent bank results reveal flaws not highlighted in broker reports … but it does raise questions on consensus forecasts.

PORTFOLIO POINT: Despite some stunning results, overall bank industry returns have deteriorated. This raises some questions on consensus market forecasts

The March 2012 quarter may have been a dourer period for the banking industry in Australia than was previously realised.

Aggregate data published by the Australian Prudential Regulation Authority shows industry profits were lower than in all but two quarters since the credit shock first hurt sector earnings five years ago.

The return on equity over the quarter was 11%, compared with an average ROE in the four prior quarters of 15%.

The return on assets over the March quarter was 0.6%, compared with an average ROA over the four previous quarters of 0.9%.

The overall industry profit for the quarter, of $5.008 billion, was the lowest since the March 2010 quarter. On the other hand, the banking industry did not earn profits in excess of $5 billion during any quarter during the long boom.

The half-year loss for Bank of Queensland during the March quarter was one factor that pulled down the industry average.

The wider cause may be the fall in interest margins during the quarter, as banks dithered over repricing loans to offset rising funding costs.

Other drivers include a pick-up in operating costs (which may have been artificially low during 2011) and lower non-interest income.

The decline in profits is evident across the four industry sectors on which APRA reports – major banks, other domestic banks, foreign subsidiary banks and foreign branch banks. Foreign bank profits declined the least over the quarter.


Below are the consensus forecasts for bank earnings, dividends and share prices from a sample of the major brokers after the latest round of profit reports.

While the major banks mostly avoid the peak earnings reporting season, with full year results for ANZ, NAB and Westpac due in late October and early November, both Commonwealth Bank and Bendigo and Adelaide reported in the past fortnight and others released third-quarter trading updates.

ANZ Banking Group (ANZ)

Reported Third quarter

Current consensus EPS estimate is 219.2, implying annual growth of 0.4%.
Current consensus DPS estimate is 145.1, implying a prospective dividend yield of 5.9%.
Current consensus price target is $24.68, suggesting upside of 0.8% (ex-dividends).
Current consensus EPS estimate suggests the PER is 11.2.

Commonwealth Bank (CBA)

Reported Full Year

Current consensus EPS estimate is 444.9, implying annual growth of N/A.
Current consensus DPS estimate is 343.5, implying a prospective dividend yield of 6.1%.
Current consensus price target is $52.73, suggesting downside of -7.1% (ex-dividends).
Current consensus EPS estimate suggests the PER is 12.8.

National Australia Bank (NAB)

Reported Third quarter

Current consensus EPS estimate is 253.1, implying annual growth of 2.3%.
Current consensus DPS estimate is 181.6, implying a prospective dividend yield of 7.4%.
Current consensus price target is $25.91, suggesting upside of 6.0% (ex-dividends).
Current consensus EPS estimate suggests the PER is 9.7.

Bendigo and Adelaide Bank (BEN)

Reported Full Year

Current consensus EPS estimate is 83.7, implying annual growth of N/A.
Current consensus DPS estimate is 60.9, implying a prospective dividend yield of 7.2%.
Current consensus price target is $8.30, suggesting downside of -1.4% (ex-dividends).
Current consensus EPS estimate suggests the PER is 10.1.

Suncorp (SUN)

Reported Full year

Current consensus EPS estimate is 78.8, implying annual growth of N/A.
Current consensus DPS estimate is 60.1, implying a prospective dividend yield of 6.8%.
Current consensus price target is $9.31, suggesting upside of 4.9% (ex-dividends).
Current consensus EPS estimate suggests the PER is 11.3.

Bank of Queensland (BOQ)

No recent reporting, consensus as of July

Current consensus EPS estimate is 16.6, implying annual growth of - 76.3%.
Current consensus DPS estimate is 52.9, implying a prospective dividend yield of 7.8%.
Current consensus price target is $7.84, suggesting upside of 15.2% (ex-dividends).
Current consensus EPS estimate suggests the PER is 41.1.

Westpac Banking Corporation (WBC)

No recent reporting, consensus as of July

Current consensus EPS estimate is 205.4, implying annual growth of - 1.9%.
Current consensus DPS estimate is 165.6, implying a prospective dividend yield of 7.5%.
Current consensus price target is $23.10, suggesting upside of 4.5% (ex-dividends).
Current consensus EPS estimate suggests the PER is 10.8.


Reproduced with permission from Banking Day with further material reproduced with permission from FNArena.

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