The weekly wrap 2: Morgan Stanley sours on ANZ

There were no changes to broker recommendations this week.

The news of the week centred on ANZ's latest capital raising, this time under a $2.2 billion share purchase plan for retail investors. A successful raising takes the bank's tier one capital ratio to a peer-high 9.7 per cent. But the exercise is not about bolstering a balance sheet in disarray - that capital has already been raised. As ANZ grows in confidence with regard to the economic climate, it is building its war chest ahead of further acquisitions in Asia.

Or at least that's the way most brokers read it. Most brokers also share ANZ's confidence, although they note any acquisition will likely drag on equity returns in the short term, and that any acquisition is still a risky proposition. There were no changes to recommendations, as noted, leaving ANZ with a dominant 3/6/1 buy/hold/sell ratio among the 10 sell-side brokers consistently monitored by FNArena.

Morgan Stanley, however, begs to differ. Morgan Stanley is not included in the FNArena broker universe at this time.

The Morgan Stanley analysts have an underweight rating on ANZ and suggest the capital raising serves only to reinforce that rating. If the raising is indeed about Asian acquisitions, they argue, then any Asian acquisition at this time will prove expensive. But that's not the only reason ANZ has raised the capital, they believe.

Morgan Stanley believes ANZ's 2010 financial year earnings forecasts are going to prove materially worse than current consensus expectations. The increase in tier one capital, acquisitions aside, is part of a plan to move to a higher ratio anyway, the analysts speculate, resulting in maturing hybrid issues being replaced by ordinary shares.

The firm's 2010 earnings forecast is 15 per cent below market consensus. It is also expecting ANZ to move to policy of maintaining a "sustainable payout ratio" rather than a discreet dividend per share, implying a dividend cut is yet to come. This suggests another perhaps 20 per cent cut in dividend to 80 cents per share at ANZ next year, following on from the earlier 25 per cent cut.

That's set the cat among the pigeons.