In a note released on 6 June, Morgan Stanley equity analyst Richard Wiles said that Australia’s largest banks are facing an environment of “lower returns [and] rising risks”.
“In our view, the Australian bank ‘super cycle’ has come to an end and incumbent banks face both operating headwinds and regulatory scrutiny,” the note said.
Accordingly, Morgan Stanley has lowered its earnings per share (EPS) estimates for the major banks by an average of 2.5 per cent for 2018–19 and 5 per cent for 2019–20.
Morgan Stanley’s EPS target for the banks is now 5 per cent below the market consensus and is reflected by a 7 per cent reduction in the average price target for the sector.
Justifying the new stance, the investment bank pointed to downgrades in loan growth forecasts, high regulatory and compliance costs, a renewed focus on responsible lending by the royal commission and a downturn in the housing market.
Morgan Stanley is also expecting NAB to cut its dividend in 2019 as the bank’s payout ratio drops below 80 per cent over the next three years.