Sometimes you get something from the sell side that feels a bit like earth tremor. Today Morgan Stanley offers such:
Falling ROE, narrowing gap to peers: CBA’s ROE fell to ~16% in 2H16E from ~17% in 1H16 and ~18% in FY15. We expect it to fall further over the next two years due to margin headwinds in retail banking, its business and institutional strategy, higher loan losses and more onerous capital requirements. We think the ROE gap to peers will narrow from ~3.5% in FY15 to ~1.5% in FY19E.
Slowing momentum in retail banking: We believe the retail bank operating environment has become more challenging and CBA’s strong 2H16 margin outcome will be difficult to sustain given a “line in the sand” on mortgage market share and more broad based margin pressure. We forecast RBS margins to fall ~4bp in FY17E and profit growth to slow to ~5% this year from ~11% last year.
