CBA vs ANZ Shares: Choosing Between Purchase and Sale

For Commonwealth Bank of Australia (ASX: CBA) shareholders, Goldman Sachs is delivering a thought-provoking perspective, suggesting that swapping CBA shares for ANZ Group Holdings Ltd (ASX: ANZ) shares could yield better returns.

Commonwealth Bank of Australia (ASX: CBA): Evaluating Challenges and Opportunities

For existing shareholders of Commonwealth Bank of Australia (ASX: CBA), Goldman Sachs presents a compelling perspective. The research indicates a challenging landscape for CBA, particularly in the context of mortgage returns on equity (ROE) facing a 25% decline in 2023. The proprietary analysis underscores a substantial reduction in housing lending return on tangible equity (ROTE) over the past decade, with a shift from 35-40% pre-FY15 to 14% in FY23. Goldman Sachs' sell rating and $81.64 price target on CBA shares reflect the concerns over the bank's consumer banking concentration, exposing earnings to industry-wide headwinds such as intense mortgage and deposit competition and the adverse impact of higher interest rates.

ANZ Group Holdings Ltd (ASX: ANZ): A Positive Outlook and Investment Potential

Contrastingly, Goldman Sachs recommends a shift towards ANZ Group Holdings Ltd (ASX: ANZ) for investors seeking better returns. The analysis highlights ANZ's improving profitability, particularly in its Institutional business. Notably, Transaction Banking profits have reached an all-time high, coupled with an enhanced return on equity (ROE). With a buy rating and a $26.66 price target on ANZ shares, Goldman Sachs sees a potential upside of 9.5%. This positive outlook for ANZ is rooted in the bank's resilience and positive performance indicators, positioning it favorably against the challenges faced by its peers in the current banking landscape.

Current Landscape

Goldman Sachs' research reveals a challenging scenario for mortgage returns on equity (ROE), indicating a 25% decline in 2023 with no clear path to significant recovery. The focus is particularly on housing lending returns, with Goldman noting a more than 50% reduction in housing lending return on tangible equity (ROTE) in the last decade.

Changing Dynamics in Housing Lending

The proprietary product profitability analysis by Goldman Sachs underscores the evolution in housing lending ROTE, dropping from 35-40% pre-FY15 to 14% in FY23. The decline is attributed to higher capital requirements before 2023, followed by a 25% year-on-year fall in mortgage lending ROTE in FY23 driven by lower return on assets (ROAs) amid competitive pressures on net interest margins (NIMs). Goldman Sachs suggests that without addressing political risk, these trends may persist.

Investment Recommendation

In light of the challenging landscape, Goldman Sachs advocates selling CBA shares and shifting focus to ANZ shares. The rationale behind this recommendation is anchored in ANZ's improving profitability, particularly in its Institutional business, with Transaction Banking profits reaching an all-time high and enhanced return on equity (ROE).

Goldman's Ratings and Price Targets

Goldman Sachs assigns a sell rating and $81.64 price target to CBA shares, signaling potential downside of 21%. The rationale emphasizes CBA's consumer banking concentration, exposing its earnings to industry-wide challenges, including intense mortgage and deposit competition and adverse impacts from higher interest rates.

Conversely, ANZ receives a buy rating from Goldman Sachs, accompanied by a $26.66 price target, implying a potential upside of 9.5% for investors. The positive outlook for ANZ is attributed to the improving profitability of its Institutional business, marked by all-time high Transaction Banking profits and enhanced ROE.

In conclusion, investors holding CBA shares may find Goldman Sachs' perspective on shifting to ANZ shares intriguing, with a focus on ANZ's evolving profitability and potential for improved returns. As market dynamics continue to shape the banking sector, navigating these recommendations requires a nuanced understanding of the evolving landscape and the unique positioning of each bank in the current economic climate.