After the disappointing first-half results from Australian banking giant Westpac, some analysts are concerned that the Australian banking sector may be facing a potential credit downgrade. Westpac missed projections by about $100m and dished out a disappointing and less than expected dividend. Morgan Stanley also downgraded Westpac after the half-year results, from equal-weight to underweight. The following day, ANZ posted a mere 5 per cent increase on its half-year profits. A recent trend of falling Financials sector stocks has been weighing on the ASX. The US-based firm Goldman Sachs cited headwinds for the major Australian financial institutions, including the tightening of bank lending by the Australian Prudential Regulation Authority. Another factor cited was the move to higher mortgage risks and higher capital requirements.
Credit Suisse also recently commented on the disappointing results. Although it maintained its underperform rating for Westpac, it hinted that other agencies such as Goldman Sachs and Morgan Stanley could take a more strict approach. Goldman Sachs downgraded Westpac from buy to neutral after the disappointing result. “We expect APRA to increase mortgage risks weights for the major banks to 25 per cent post the Financial System Inquiry,” said Goldman Sachs. Credit Suisse commented that the headwinds signalled a “ringing bell for the sector” as US-based firms start to downgrade Australian financial institutions. Morgan Stanley reported a large number of future risks to the Australian Financials sector. “We forecast a lift in the average mortgage risks weightings to 26 per cent,” it said. “However, we see the risks of even more onerous requirements for investment property loans, which account for over 46 per cent of Westpac’s Australian mortgage book.”
May 05, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian. Simon worked for Wise-owl from 2013 until January 2020.