Recently, when the Reserve Bank of Australia (RBA) reduced its official cash rate by further 25 basis points, it prompted many banks to reduce their deposit rates. Deposit and savings rates being at a record low is a big reason for the savers to worry about. In addition, the market is expecting that the RBA will further reduce its official cash rate in the near future in order to bolster the economy. If that happens, the savers can expect further reductions in the deposit rates.
At the time of cash rate reduction, one of Australia’s leading banks, Commonwealth Bank of Australia (ASX: CBA) deliberately limited the interest rate reduction to 0.15% per annum on its most sought-after savings account – NetBank Saver.
CBA’s other offers for savers were as follows:
- Following RBA’s cash rate cut on 2nd July 2019, CBA introduced a special five-month term deposit rate at 2.20% per annum, which was 0.20% higher than the previous rate;
- Also, the existing CBA pensioner customers became eligible for an additional 0.10% per annum bonus on this special five-month term deposit.
Other major players like NAB, CBA, ANZ have also reduced their rates in response to RBA’s rate cut.
Rationale Behind Rate Cuts: At the time of cash rate reduction, RBA’s Governor, Mr Philip Lowe assured in his speech that the revised cash rate will support jobs growth across Australia and further explained that there is a fair degree of spare capacity in the economy, which is why it is desirable to reduce that spare capacity by rate cuts.
Following a torrid last year, the major players of financial sectors have been taking corrective actions to improve their current positions as well as to gain back the trust of customers, which most of them lost due to issues highlighted by the Royal Commission.
The S&P/ASX 200 Financial Index was up by 1.27% during today’s intraday trade with all the four major banks (in terms of market capitalisation) rising on ASX. Let’s take a look at the share performances of all the four leading banks of Australia.
National Australia Bank Limited (ASX: NAB)
The share price of National Australia Bank Limited (ASX: NAB) increased by 13.67% during the last six months as on 23rd July 2019. At market close on 24th July 2019, NAB’s stock was trading at a price of $28.330, up by 1.687% during the intraday trade. The stock is trading near to its 52 weeks high of $29. NAB currently has a market capitalisation of $80.32 billion, with around ~2.88 billion outstanding shares. NAB’s stock has provided a year-to-date return of 17.90% and is trading at a PE multiple of 13.580x, with an annual dividend yield of 6.53%.
Commonwealth Bank of Australia (ASX: CBA)
The stock of Commonwealth Bank of Australia (ASX: CBA) has provided a year-to-date return of 14.91% as on 23rd July 2019. In the last six and three months, the share price of CBA increased by 13.06% and 9.91%, respectively. At market close on 24th July 2019, CBA’s stock was trading at a price of $82.350, up by 0.981% during the intraday trade. The stock is trading near to its 52 weeks high of $83.990. CBA currently has a market capitalisation of ~$144.36 billion, with around 1.77 billion outstanding shares. CBA’s stock is trading at a PE multiple of 15.890x, with an annual dividend yield of 5.29%.
Westpac Banking Corporation (ASX: WBC)
The share price of Westpac Banking Corporation (ASX: WBC) increased by 9.06% during the last six months as on 23rd July 2019. At market close on 24th July 2019, WBC’s stock was trading at a price of $28.390, up by 1.683% during the intraday trade. The stock has a 52 weeks high price of $30.440 and 52 weeks low price of $23.300. WBC currently has a market capitalisation of ~$97.44 billion, with around 3.49 billion outstanding shares. WBC’s stock has provided a year-to-date return of 14.05% and is trading at a PE multiple of 13.550x, with an annual dividend yield of 6.73%.
Australia and New Zealand Banking Group Limited (ASX: ANZ)
The stock of Australia And New Zealand Banking Group Limited (ASX: ANZ) has provided a YTD return of 14.71% as on 23rd July 2019. In the last six and three months, the share price of ANZ increased by 6.04% and 1.07%, respectively. At market close on 24th July 2019, ANZ’s stock was trading at a price of $27.650%, up by 0.802% during the intraday trade. The stock has a 52 weeks high price of $30.390 and 52 weeks low price of $22.980, with an average volume of ~5,646,356. ANZ currently has a market capitalisation of ~$77.75 billion, with around 2.83 billion outstanding shares. ANZ’s stock is trading at a PE multiple of 12.520x, with an annual dividend yield of 5.83%.
MFG’s Stock Trading High: The stock of Australia’s leading fund management company, Magellan Financial Group Limited (ASX: MFG) has been performing significantly well, rising by 139.73% over last one year. The stock currently has a high P/E multiple of 31.450x. At market close on 24th July 2019, the stock was trading at a price of $61.050, very close to its 52 weeks high of $61.485.
In the month of June 2019, MFG experienced net inflows of $488 million and at the end of the month, the company had Funds Under Management (FUM) of $86,718 million. For the month of June, the company reported Global Equities of $64,020 million, Infrastructure Equities of $15,162 million and Australian Equities of $7,536 million. It is expected that in the month of July, the funds will pay distributions of around $604 million. For FY19, the company is expecting to report performance fees of around $83 million.
2019 June Month FUM Information (Source: Company reports)
For the half year ended 31st December 2018, Magellan Financial Group reported total revenues of $275,604, up 40.8% on pcp. Further, the company earned a net profit after income tax expense of $173,523 during the period, which was 224.6% higher than pcp. As at 31st December 2018, the company had net assets of $660.9 million, which includes $126.7 million of intangible assets.
In the half year period, the company earned $42.7 million before tax in performance fees, which is a major source of income. For the half year period, the company declared a dividend of 73.8 cents per share, which is 75% franked, demonstrating an increase of 66% over pcp.
At the end of the half year, the company had total net principal investments of $281.0 million, which included investments in Magellan’s listed and unlisted funds.
Half year Results (Source: Company Reports)
The back-to-back rate cuts in June and July by RBA took the cash rate to a record low of 1%. Via cash rate reductions, RBA intends to improve the conditions of the Australian economy by boosting growth. As the market is anticipating further cash rate cut by RBA, investors are keeping a close eye on the activities of the financial institutions.
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