Three of Australia's big four banks have given market updates
this month. You'd be forgiven for wondering if they were discussing
the same market.
The chief executive of the largest by market value, Commonwealth
Bank of Australia (CBA.AU), struck an upbeat tone on Wednesday when
the lender reported consensus-beating earnings in its fiscal first
half.
It cited a year-long spate of interest-rate cuts by the central
bank that had helped warm the economy, helping net profit to climb
1% to 3.66 billion Australian dollars (US$3.79 billion) and cash
profit, which omits one-off-items, to rise 6% to A$3.78
billion.
As the country's largest retail lender, Commonwealth Bank is
something of a bellwether for Australia's economic health.
The bank's cheerful tone, both in the results and outlook
statement, chimed with the central bank's own view that the
resource-rich economy, weighed down last year by slowing demand
from China, was gradually turning the corner.
Chief Executive Ian Narev's remark that the rate cuts had
injected "a bit more optimism" into the economy were greeted with
enthusiasm by the market. CBA's shares closed up 2.4% on Wednesday
after hitting a record high of A$67.38, the same day a
non-government survey showed consumer confidence rising to its
highest level in more than two years.
"If the current stability continues, we believe it will
translate into a slow but steady rebuilding of consumer and
business confidence in Australia," Mr. Narev said. "That is our
base case for the 2013 calendar year."
Australia & New Zealand Banking Group Ltd. (ANZ.AU), which
reported quarterly results on Friday, painted a different picture.
Its Chief Executive, Mike Smith, dubbed the Australian economy
"soft" and insisted consumer and business confidence was "weak," as
the lender reported a 20% drop in quarterly net profit.
While ANZ's cash profit climbed 6.2% to A$1.53 billion in the
final three months of 2012, its shares fell as much as 1.6% on
Friday, partly due to its more conservative outlook, adding to
concern it was failing to squeeze as much profit as rivals from its
loans.
National Australia Bank Ltd. (NAB.AU), which released a
quarterly update the previous week, tilted closer to ANZ's story on
the economy. Its boss, Cameron Clyne, who has been dealing with
weakness both in Australia and the U.K.--where NAB owns two
banks--described economic conditions on the domestic front as
"challenging," even as it reported consensus-beating first-quarter
results.
The discrepancy in viewpoints is partly explained by the
different business models of the three banks. Commonwealth Bank is
the country's biggest retail lender, which means it benefits most
from rising consumer confidence.
NAB and ANZ are both more exposed to business lending, where
sentiment is weaker. A survey from East & Partners, for
instance, last week found that demand for all types of business
banking services fell between November and January by an average of
1.9%.
As Nomura analyst Victor German put it: "Retail banking is the
place to be right now."
Despite their differing outlooks, investors overall still seem
to like Australia's banks, deemed to be among the most credit
worthy in the world.
Paul Xiradis, Chief Executive of A$11 billion fund manager
Ausbil Dexia, is one investor who plans staying overweight the
banking sector after the updates.
Despite their grimmer outlook, Mr. Xiradis reckons shares in ANZ
and NAB are the most undervalued and will outperform the bigger
retail banks later in the year as economic conditions improve.
"The fundamentals for the overall banking system are still quite
strong," he said.
The last of Australia's big four lender, Westpac Banking Corp.,
is due a half-year update in May.
Write to Caroline Henshaw at caroline.henshaw@wsj.com
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