Morningstar downgrades ANZ after AmBank share sale
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The news: Investment research house Morningstar downgraded its rating on ANZ after the bank sold a 16.5% stake in Malaysian lender AmBank on Tuesday.
The numbers: Morningstar analysts reduced their ANZ rating from four stars — a rating that "encourages investors to own the firm's shares" — to three stars, indicating that while investors are "likely to receive a fair risk-adjusted return", concentrated portfolios "might consider exiting these positions if more attractively priced alternatives are available".
The context: The analysts said the AmBank sale, which will reduce ANZ's shareholding in the lender from 21.7% to 5.2%, signifies a downscaling of its Asian operations, as it "walked away from lending to small business".
It noted that ANZ had a greater slant towards institutional banking and markets than its peers, but retail banking was still the core earnings contributor. Due to this earnings mix, the bank delivered lower returns meaning the institutional division provided diversification and access to low cost customer deposits which were used to fund growth in consumer loans.
However, the analysts said that the recently approved acquisition of Suncorp Bank would elevate ANZ Bank to Australia's third biggest home lender.
What they said: Morningstar analyst Nathan Zaia said: "We expect the step-up in investment spend (Suncorp buy) to help defend market share as opposed to materially growing earnings".
"Well capitalised and holding large loan loss provisions, ANZ Bank is well placed to withstand any residual fallout from rising cash rates," he said.
The source: Morningstar
