The Big Four Australian lenders may see their full year earnings decline by as much as ten per cent as bad debts begin to mount and increase by up to 76 per cent according to a Merrill Lynch client note.
The research report suggests that earnings per share could fall by 10 per cent in the current financial year and a further 11 per cent in the following fiscal year 2010. The report cited increased unsecured lending losses from credit cards and other personal loan products as well as a larger number of corporate failures and negative exposure to commercial real estate.
The broker says consumer losses are forecast to rise by 76 per cent in fiscal 2009 and by another 63 per cent in 2010 as bad debts from credit card and personal lending peak and become the key driver of banks’ non-housing related bad debts. A growing list of 167 companies that may not pay back their debt, up from 130 last October, means the banks may take more hits on their aggregate $40 billion exposure to this sector.
The stock broker now fully acquired by Bank of America and since been co-branded Bank of America Securities-Merrill Lynch reckons ANZ’s earnings will plunge 10 per cent in 2009 to $1.62 a share. The broker also believes that ANZ’s earnings will fall a further 7 per cent in 2010 due to the lenders exposure to the personal banking in its lending portfolio. Merrill bases that estimate on unemployment increasing to an expected 7.5 per cent.
Merrill expects NAB’s earnings to fall by 8 per cent this fiscal to $2.32 a share, Westpac’s earnings to decline by 6 per cent to $1.77 a share and the broker thinks that CBA the bear the least of the brunt with 09 earnings only dropping by 1 per cent to $2.88.
The research report went on to add that the next fiscal year would not be much better with Westpac, NAB’s and CBA’s earnings plummeting 11 per cent, 9 per cent and 5 per cent respectively.
The authors of the research report predict that three of the big four will be forced to cut dividends in the face of earnings declines with ANZ cutting its dividend by 11 per cent CBA cutting its dividend by 8 per cent, whilst NAB would cut its dividend by 5 per cent in fiscal 09. Only Westpac would leave its dividend untouched.