Why ANZ is the pick of the Big 4 as the budget fallout bites

ANZ (ASX: ANZ) has delivered the best 'bad news' among banking results so far, with mortgage applications down 12% since the budget, compared to CBA's 15% decline and Westpac's 20% slump.

Shares are up 3.5% to $37.66 at the time of writing, also the strongest share price reaction of the majors. CBA slipped 0.6% on results day (12 August) and Westpac dipped 5.8% on its quarterly update (10 August). Perhaps it's the optics, or perhaps ANZ simply reported after the worst of the news had already been somewhat baked into the broader banking sector.

ANZ has been the best performing Big 4 bank over the last twelve months thanks to a credible cost-out story under chief executive Nuno Matos.

Matos said ANZ was on track to meet its FY26 year-end completion targets, including progress on its Suncorp Bank integration, delivery of the ANZ single customer front-end and simplifying the organisation.

Q3 FY26 results

• Cash profit up 1% (on 1H26 qtr avg) to $1.90bn vs. $1.923bn ests (in-line)
• Group net interest margin up 1 bp to 1.54% vs. 1.53% ests (1 bp beat)
• Excluding markets, Group net interest margin rose 4 bps, benefitting from the capital and replicating portfolio
• Customer deposits up 2%, net loans and advances increased 3%
• Expenses up 1%, or down 3% when the NZ$125m New Zealand class action is excluded
• Individual provision charge of $65m vs. $130m ests
• CET1 up 12 bps quarter-on-quarter to 12.51% 
• Australian 90 Day Past Due loans up 3 bps quarter-on-quarter to 86 bps

Do you currently hold ANZ and what do you rate it?

We are current holders of the stock and see it as a Hold, but it is the most attractive name amongst the Big 4 banks.

What mattered most from the result?

Confidence has returned to the name after the initial strategy reveal. Investors have been wondering whether Nuno will do no wrong, and he is by all means walking the talk from what we can see.

On cost management, cost performance was strong, with significant progress made on the Suncorp integration and right-sizing of the retail business, and it is encouraging to see this on track.

On revenue growth and franchise performance, or market share, whilst cost is front of mind for investors, in the background we can see on the lending side, specifically in home loans, they are back to growing with system since the start of the second half. 

There will likely be headwinds in the short term to top-line growth courtesy of the budget, but maintaining market share is an important proxy for the health of the business, provided it does not come at great detriment to margins. Again, this is in line with the expectation Nuno set in October. This is important as, whilst cost reductions will be an important feature of earnings growth in the short term, revenue and business growth is key for long term profitability and returns, which is critical for valuation.

What should investors be watching from here?

In terms of potential upside drivers, ANZ is better positioned than peers from a bottom line perspective as they are already fairly advanced in the execution of their cost reduction program, which may lead to a narrowing of its valuation discount to peers.

On the launch of ANZ Plus, whilst this to me doesn't signal a revolution of banking products, having witnessed first hand the archaic back end systems of a big four bank, I am of the view that it will make it a lot easier for customers to use ANZ and cheaper for ANZ to serve them, which will improve their ability to grow.

As for risks, impairments and budget fallout are front of mind. The most recent round of updates suggests this has not been felt, but we can see from Westpac that the base case assumptions around employment and house price declines likely remain relatively rosy. I'm not a housing mega bear, this is just the maths, but if house prices fell 0.7% in July and the expectation is for a 1% fall in 2026 in WBC's models, it suggests risks are to the downside, and as provisions since 2018 are forward looking we may start to see some adjustments in the coming updates

This will impact sentiment towards the sector and lead to earnings downgrades if it materialises. There were also early signs of deterioration in underwriting standards from CBA's disclosures, and typically the worst of loans are made at the best of times (i.e. 2020/21 when rates were zero), so interestingly it's the loans they made after rates increased that are experiencing higher arrears. This is unusual.