With the big four banks having recently reported results, it might be timely to review their results and their outlook for the future.
Cash earnings
Cash earnings are essentially the underlying net profit for the banks and give a better indication of their 'true' business performance.
| Bank | Amount | Change |
| Australia and New Zealand Banking Group (ASX: ANZ) | $3.5 billion | Down 4% |
| Commonwealth Bank of Australia (ASX: CBA) | $4.8 billion | Up 4% |
| National Australia Bank Ltd (ASX: NAB) | $3.3 billion | Up 6.5% |
| Westpac Banking Corp (ASX: WBC) | $3.9 billion | Up 3% |
Source: company reports
ANZ's cash profit before provisions was up 5%, so on that basis, all four of the banks posted decent results. However, it's not until we take a look at the next table that we see the real 'true' results that matter to shareholders.
Cash earnings per share
| Bank | Amount | Change |
| Australia and New Zealand Banking Group | 121 cents | Down 8.3% |
| Commonwealth Bank | 284.4 cents | Up 0.7% |
| National Australia Bank | 125.7 cents | Down 1.6% |
| Westpac Banking Corp | 118.2 cents | Down 6% |
Source: company reports
ANZ, NAB and Westpac's earnings per share (EPS) were all down due mostly to huge capital raisings during the year, and CBA only managed to see a small increase in EPS. Share prices tend to follow earnings per share, so the banks will want to reverse this trend if they want to see their share prices higher.
Operating income
| Bank | Amount | Change |
| Australia and New Zealand Banking Group | $10.3 billion | Flat |
| Commonwealth Bank | $12.4 billion | Up 6% |
| National Australia Bank | $8.9 billion | Up 3% |
| Westpac Banking Corp | $10.6 billion | Up 6% |
Source: Company reports
Like Cash earnings, operating income results aren't that bad.
Return on Equity
| Bank | Ratio | Change |
| Australia and New Zealand Banking Group | 12.2% | Down 2.3% |
| Commonwealth Bank | 17.2% | Down 1.4% |
| National Australia Bank | 14.1% | Down 1.7% |
| Westpac Banking Corp | 14.2% | Down 1.7% |
Source: Company reports
All of the banks' return on equity (ROE) ratios have dropped, primarily due to a strong rise in underlying equity (and number of shares).
Dividend and payout ratio
| Bank | Amount | Payout ratio | Dividend change |
| Australia and New Zealand Banking Group | 80 cents | 67% | Down 7% |
| Commonwealth Bank | $1.98 | 70.8% | Up 1.4% |
| National Australia Bank | 99 cents | 78.8% | Up 1.3% |
| Westpac Banking Corp | 94 cents | 80.3% | Down 1% |
Source: company reports
NAB's payout ratio increased by 1.3% to 78.8%. Westpac's payout ratio of over 80% is much higher than historically (76.8% last year) and both NAB and Westpac are unlikely to be able to sustain such high rates for long.
ANZ cut its pro forma dividend yield to 67%, but intends to consolidate in its long-term range of between 60 and 65%. That suggests more cuts to dividends are coming for ANZ, NAB and Westpac.
By comparison, CBA's payout ratio is at 70.8%, and while it also could be cut, CBA appears under less pressure to do so than the other three banks.
Foolish takeaway
The results clearly show the impact on the banks of being forced to hold more capital and their subsequent capital raisings. Add in the outlook for rising bad debt provisions, lower margins, low single-digit or negative earnings growth, and higher capital requirements suggest now is not the time to be buying bank shares.
