Macquarie downgrades big four banks
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The news: Macquarie has downgraded the big four banks to “underperform”, arguing they were trading at peak multiples without a clear fundamental reason.
The numbers: Macquarie's analysts said that while they had been underweight the banking sector since earlier this year, they were now taking “a more aggressive stance” following around a 5% outperformance.
They downgraded Westpac from ‘outperform’ to ‘underperform’ following a 17% share price rally compared to a 5% to 13% relative outperformance compared to its peers. ANZ and NAB were both downgraded to ‘underperform’ from ‘neutral’ as Macquarie’s price targets were below current share prices across all of their bank coverage. Commonwealth bank retained its ‘underperform’ rating.
All the the big four shares were trading lower with Commonwealth Bank down 1.55%, Westpac down 4.09%, NAB down 3.25%, and ANZ down 3.62% by 3.34pm AEDT.
The context: The key reasons Macquarie analysts downgraded the big four were that banks were trading at peak multiples without a clear fundamental reason, economic and stock-specific settings that underpinned banks’ outperformance during previous rate cut cycles were not evident, and the analysts saw limited scope for banks to surprise in the medium term and saw limited fundamental reasons for a structural re-rating.
Macquarie’s order of preference for the banks were NAB, Westpac, ANZ, and Commonwealth Bank.
What they said: “Banks are looking expensive in absolute and relative terms after around 6% relative outperformance versus the broader market in the second half of 2023 and a further 8% since the beginning of the year,” the analysts said.
“ … Should rate cuts come through as expected (arguably the key driver of higher valuations in recent months), we see downside risk to earnings as we believe it will be difficult for banks to offset margin headwinds associated with lower rates.
“Given the current political landscape and increased focus on social aspects, we think it will be difficult for banks to reprice mortgages, particularly in an election year.”
The source: Macquarie research
