Macquarie Securities extends coverage in the banking sector, anticipating consolidation at the small
Macquarie Securities has initiated coverage of MyState and Wide Bay to focus on investment opportunities arising from changes in the small-cap banking sector. But in an inauspicious maiden report it has put a Hold recommendation on MyState and an Underperform on Wide Bay.
Macquarie said its Underperform rating on Wide Bay was driven by concern that the group's efforts to re-brand and expand its market would not offset weakness in its core central and north Queensland markets.
Wide Bay is going through an approval process to change its status from a building society to a bank. It is changing its name to Auswide Bank Ltd.
Macquarie said Wide Bay was exposed to the recent decline in activity in Queensland's resources towns and has suffered falling revenue for the past three years.
Macquarie is expecting Wide Bay to increase earnings by less than one per cent in the year to June and said the stock was over-priced.
Macquarie said it was anticipating consolidation among small banks. Small banks face a number of pressures: they will have to hold more capital if Financial System Inquiry recommendations are adopted; and their technology costs are growing as they try to meet consumer expectations for multi-platform services.
Its view is that MyState has a strong appetite for acquisitions. It acquired Tasmanian Perpetual Trustees in 2009 and The Rock Building Society in 2011.
Macquarie said Wide Bay was more likely to be a target rather than an acquirer and nominated Bank of Queensland and Suncorp as the more likely suitors.