Via Jonathon Mott at UBS:
Broadly in line excluding ‘large/notable’ items. 35cps div (cons 40cps). CET1 solid beat.
KEY NUMBERS (FY20, continuing operations)
(1) FY20 Cash NPAT from continuing operations $3,758m (in line with UBSe); (2) Cash Basic EPS continuing 133cps (Cons 136cps, UBSe 133cps); (3) Final dividend 35cps (Cons 39cps, UBSe 40cps).
RESULT HIGHLIGHTS (2H20 seq. basis)
2H20 (H/H) – (1) Net interest income down 5% to $6,827m (2% below Cons); (2) NIM fell 11bps to 1.57% (Cons 1.59%), largely given the impact of low rates net of repricing and asset/deposit mix; (3) Volume growth 1.5% (Cons 2.7%, UBSe 3.5%), Housing up 4%, Institutional loans down 21%; (4) Non-interest income up 73% to $2,346m (3% below Cons), with trading income 50% ($500m) above LT target levels; (5) Headline revenue +7%. Revenue excluding large/notable items was flat. Ex trading revenue down 4.5%; (6) Costs lifted 4%. Excluding large/notable items costs were down 3%; (7) Pre-Provision Profit +11% (4% below UBSe), but excluding large/notable items underlying Pre-Provision Profit was up 2%; (8) Credit Impairment Charges (BDD) of 34bps or $1,064m (Cons 40bps). Further top-ups taken in Retail and Commercial; (9) NPLs 101bps (Cons 102bps); (10) CET1 of 11.34% (Cons 11.16%), due to a 4% reduction in RWA as the Institutional book ran off; (11) 35cps final dividend was fully franked (was 70% franked in 2H19) representing 49% payout; (12) 79% of mortgages completing deferral are reverting to full payment – a good outcome.
NIM: Low rates hit to the replicating portfolio expected to reduce NIM by ~3bps 1H21E.
RWA Procyclicality: Base case hit to CET1 now expected at 65bp (was 110bp). Of this 18bp was already seen in FY20. Implies only 47bp to go.
UBS COMMENT – PT $21 (unchanged, GGM Based)
Reasonable result, with a lot of moving parts. Strong capital, provision build and run off of deferrals were the highlight. Working through the issues in challenging times.
Muddling through, sure. But little topline growth ahead, an endless margin squeeze and ongoing ratiotalisation of bad debts as the fiscal cliff matures.
It’s been a weird and not a little contradictory combination of steepening US yield curve and RBA QE that have given the banks a decent bid of late. It has been strong every time that they have dipped. But it’s not terribly rational.
I wonder if the banks are not now into one final round of being inflated as dumb yield plays as their underlying businesses slowly die.