Jun- Dec- Jun- Dec- Jun- Dec- Jun-1 Dec-1 Jun-11 Dec-11 Jun-1 Dec-1 Jun-1 Dec-1 Jun-1 Dec-1 Jun- Dec- AUSTRALIA Repricing generally follows an election s Nov Aug 1 Sep 1 1-1 Source: RBA, Macquarie Research, April 1 Special TDs vs div yield (grossed up) Source: RBA, Factset, Macquarie Research, April 1 Inside Change in spread Change in investor spread 1 1 Spread Long term average year average Short positions Net retail buying Banks and ASX Net retail buying bank by bank Share register composition Active positions Implied shareholding and movement Money Talks vertically challenged Short positions in the banks are currently at their highest levels since 11. Broader macroeconomic and regulatory concerns coupled with rising impairment charges have resulted in a ~1 decline in bank share-prices and ~ rise in short positions since the beginning of this year. Within the majors, ANZ and WBC have the higher level of short positions, while BEN s short positions are the highest across the banking sector. Should the upcoming results and outlook commentary exceed current relatively bearish expectations, bank share-prices could rebound. We see fundamental value in the sector at current levels and see upside risk in the upcoming banks results relative to perceived negative market sentiment. Further, we believe there is near-term upside risk from additional mortgage repricing after the July 1 Federal elections. Majors average short positions and banks index.. 1. 1.. Source: ASIC, IRESS, Company data, Macquarie Research, April 1 We also analysed retail buying activity, given this segment represent ~ of banks registries. As the figure below highlights, retail investors remained the net buyers of banks in the first quarter. It appears that retail investors generally maintained their strategy of buying the dips. In that sense we continue to expect to see support from retail investors, especially while dividend yield support remains. Banks net buying by retail investors Index,,,,, 1,. 11, Mar-11 Sep-11 Mar-1 Sep-1 Mar-1 Sep-1 Mar-1 Sep-1 Mar- Sep- Mar-1 Majors Short Interests Bank Index (RHS) 1 - -1 Index 11 1 April 1 Macquarie Securities (Australia) Limited - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - all banks (LHS) Banks Index (RHS) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Short positions The following figures summarise short positions across the banks. We note that the overall level of short positions in the majors increased sharply in February. This increase was initially driven by a rise in short positions in NAB (from low levels) in late Jan and CBA in early Feb. ANZ and WBC saw their short positions increasing progressively since February and are still trending upwards. In recent weeks CBA s short interest has been unwound and is ~s below the February peak. Across the regionals, short positions in BEN have been increasing since Nov- and currently stand at near peak levels (~). Short positions in BOQ are currently at a similar level (~) and have been somewhat volatile in recent months after peaking in Oct-. Both remain elevated relative to the majors (- active short positions). Short interests in the majors have moderated around the mark in recent months. This has been sparked by recent concerns around asset quality. The previous peak in H was reached following the various capital raisings by each of the majors before these were subsequently unwound into the end of the calendar year Fig 1 Majors average short positions and banks index Index.,.,, 1., 1.,. 1,. 11, Mar-11 Sep-11 Mar-1 Sep-1 Mar-1 Sep-1 Mar-1 Sep-1 Mar- Sep- Mar-1 Majors Short Interests Bank Index (RHS) Source: ASIC, IRESS, Company data, Macquarie Research, April 1 Fig ANZ short positions and share price Fig CBA short positions and share price.... 1. 1...... 1. 1... 1 ANZ Short Interests CBA Short Interests Source: ASIC, IRESS, Company data, Macquarie Research, April 1 Source: ASIC, IRESS, Company data, Macquarie Research, April 1 April 1
Fig NAB short positions and share price Fig WBC short positions and share price.. 1... 1 1. 1.. 1.... 1 NAB Short Interests WBC Short Interests Source: ASIC, IRESS, Company data, Macquarie Research, April 1 Source: ASIC, IRESS, Company data, Macquarie Research, April 1 Fig BEN short positions and share price Fig BOQ short positions and share price 1 1 1 11 1 1 1 1 11 1 1 1 BEN Short Interests BOQ Short Interests Source: ASIC, IRESS, Company data, Macquarie Research, April 1 Source: ASIC, IRESS, Company data, Macquarie Research, April 1 April 1
Net retail buying Banks and ASX We analysed retail buying activity, given this segment represents ~ of banks registries. As the figure below highlights, retail investors remained the net buyers of banks in the first quarter. It appears that retail investors generally maintained their strategy of buying the dips. Our share trading data suggests that retail investors had the first meaningful net reduction in holdings of bank shares and the broader market after several months of being net buyers in March as prices began to recover. Fig Banks net buying by retail investors Retail investors were the net buyers for the first two months of the year. This was partially reversed in the final month of the quarter as bank share prices recovered. 1 - -1 Index 11 1 - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - all banks (LHS) Banks Index (RHS) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Fig S&P/ASX net buying by retail investors Similar trends existed when looking at the entire market, although retail selling in March almost completely neutralised the net buying activity in the first two months of 1. This was the first month of meaningful retail portfolio reductions since Feb-. Index - - - - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - all retail (LHS) ASX Index (RHS) Source: Company data, Factset, IRESS, Macquarie Research, April 1 April 1
Net retail buying bank by bank In this section we look at the net buying of retail investors on a stock-by-stock basis. We utilised trading data from three retail brokers (CommSec, Macquarie Retail and E-Trade). We calculate net buying from these brokers as a percentage of the market cap of the stock. We note there is a series break in Jan-1, as we excluded CommSec prior to this date (due to the institutional activity incorporated in the historical numbers). Key takeaways for the most recent quarter include: Retail investors were net buyers of ANZ, CBA and NAB for the quarter, with this being partially offset for CBA in March. WBC saw net selling over the period with two flat months followed by a reduction in March. Both the regional banks saw net buying from retail investors around their profit downgrades, suggesting retail investors were buying the recent weakness. Interestingly, we saw retail investors selling their CYB holdings in the months following the demerger from NAB. Fig 1 Retail net-buy (ANZ) Fig 11 Retail net-buy (CBA) 1 - -1 - - - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 1 1 - -1 - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - ANZ Net buying - CBA Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Fig 1 Retail net-buy (NAB) Fig 1 Retail net-buy (WBC) 1 - -1 - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 1 - -1 - - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - NAB Net buying - WBC Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 April 1
Fig 1 Retail net-buy (BEN) Fig Retail net-buy (BOQ) 1 1 1 1 1 1 1 11 1-1 1 11 1 - - - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - BEN Net buying - BOQ Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Fig 1 Retail net-buy (MYS) Fig 1 Retail net-buy (ABA).. 1... -. -1. -. -. Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 1 11 1 1-1 - - Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - MYS Net buying - ABA Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Fig 1 Retail net-buy (MOC) Fig 1 Retail net-buy (CYB).... - 1. - - 1. Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1. -.. -. -.. -. -1.. -1.1-1. Mar-11 Mar-1 Mar-1 Mar-1 Mar- Mar-1 Net buying - MOC Net buying - CYB Note: Series break in January 1 (CommSec excluded in prior periods) Source: Company data, Factset, IRESS, Macquarie Research, April 1 Source: Company data, Factset, IRESS, Macquarie Research, April 1 April 1
Share register composition The section below focuses on the share registry data of the banks sector. While we note there are limitations in this data set and its comparability across banks is hence also limited (particularly across the various investor groups), we see it as a reasonable proxy for investor activity. Fig Share register retail proportion The retail proportion of shareholders at CBA and WBC has been declining in recent months, whilst ANZ and NAB have seen their proportion of retail shareholders increase Source: Company data, Macquarie Research, April 1 Fig 1 Share register domestic institutional proportion Conversely the proportion of domestic insto investors at CBA and WBC have been increasing while ANZ and NAB s proportion has been decreasing Source: Company data, Macquarie Research, April 1 Fig Share register offshore proportion The proportion of offshore investors across the sector have been decreasing in recent months with the exception of WBC, which has remained broadly stable 1 Source: Company data, Macquarie Research, April 1 April 1
Active positions In this section we focus on relative active positions within the sector. We note this analysis doesn t show active weights relative to the index but rather investors relative positions within the banking sector (ie within retail banking portfolios, investors are overweight CBA and underweight ANZ). Looking at active weights, retail investors appear overweight CBA and underweight the other three majors, with the largest underweight bank being ANZ. Fig Active position retail 1-1 - - - Source: Company data, Factset, Macquarie Research, April 1 Fig Active position domestic institutional Domestic institutional investors are now most overweight in WBC followed closely by NAB, with the largest underweight position in CBA. 1-1 - - - - - Source: Company data, Factset, Macquarie Research, April 1 Fig Active position offshore Offshore investors appear relatively overweight in ANZ and underweight CBA. NAB and WBC appear broadly neutral - - - Source: Company data, Factset, Macquarie Research, April 1 April 1
Mar-11 Jun-11 Sep-11 Dec-11 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar- Jun- Sep- Dec- Mar-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar- Jun- Sep- Dec- Mar-1 Macquarie Wealth Management Implied shareholding and movement The figures below summarise relative movement in shares over the last 1 months. Based on this data, in 1Q1: Domestic institutional investors were net buyers across the sector (excluding CBA). WBC remained the preferred exposure across the domestic funding. Offshore investors were net sellers of the domestic banks. When this is combined with the short positions, which we understand are also largely offshore driven, it appears that the recent sell-off was largely driven by offshore investors. Fig Domestic inst. implied shareholding Fig Domestic inst. quarterly share movement 1,1 1, 1-1 - - Q1 Q1 Q1 1Q Q Q Q 1Q1 Source: Company data, Macquarie Research, April 1 Source: Company data, Macquarie Research, April 1 Fig Offshore implied shareholding Fig Offshore quarterly share movement 1-1 - - Q1 Q1 Q1 1Q Q Q Q 1Q1 Source: Company data, Macquarie Research, April 1 Source: Company data, Macquarie Research, April 1 April 1
Mar-11 Jun-11 Sep-11 Dec-11 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar- Jun- Sep- Dec- Mar-1 Macquarie Wealth Management Fig Retail implied shareholding Fig 1 Retail quarterly share movement 1, 1, 1, 1, 1, 1,1 1, 1 1 - - - Q1 Q1 Q1 1Q Q Q Q 1Q1 Source: Company data, Macquarie Research, April 1 Source: Company data, Macquarie Research, April 1 Stocks mentioned ANZ Bank (ANZ AU, A., Outperform, TP: A.) Commonwealth Bank (CBA AU, A., Neutral, TP: A.) National Australia Bank (NAB AU, A., Outperform, TP: A.) Westpac Banking Corporation (WBC AU, A1., Neutral, TP: A.) Bendigo and Adelaide Bank (BEN AU, A.1, Neutral, TP: A.) Bank of Queensland (BOQ AU, A1., Neutral, TP: A1.) MyState (MYS AU, A., Neutral, TP: A.) Auswide Bank (ABA AU, A.1, Neutral, TP: A.) Mortgage Choice (MOC AU, A1., Outperform, TP: A.) Clydesdale (CYB AU, A., Outperform, TP: A.) April 1 1
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > below benchmark return Benchmark return is determined by long term nominal GDP growth plus 1 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie South Africa Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie - Canada Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > below benchmark return Macquarie - USA Outperform (Buy) return > in excess of Russell index return Neutral (Hold) return within of Russell index return Underperform (Sell) return > below Russell index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 1 in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least in a year. Low medium stock should be expected to move up or down at least in a year. Low stock should be expected to move up or down at least in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 1 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 1 March 1 AU/NZ Asia RSA USA CA EUR Outperform......1 (for global coverage by Macquarie,. of stocks followed are investment banking clients) Neutral.1.....1 (for global coverage by Macquarie,. of stocks followed are investment banking clients) Underperform.. 1... 1. (for global coverage by Macquarie,.1 of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 1, AFSL, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 1 AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN, AFSL No. ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1 (Australia) to conduct banking business in Australia. 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