Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy after falling 48% due to the coronavirus?
ANZ's trailing grossed-up dividend yield is now 14.5%, assuming the reduced franking credit level continues.
Of course, ANZ isn't the only major bank that has seen its share price fall heavily. Shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) have all fallen around 40% or more.
Investors are worried that cashflow is suddenly going to dry up for many of the big bank's borrowers. Particularly for business borrowers, which is why ANZ and NAB are suffering more than CBA because those two banks are more focused on business customers.
A large amount of businesses across the country are now shut. Some people can work from home, but plenty of businesses don't have that option. Restaurants and cafes are limited to takeaway.
It's in this environment that ASX banks face many difficulties. They have reduced interest rates for borrowers and also said they can do a payment holiday for borrowers who are in trouble.
All of these measures will, at best, reduce bank profit this year. Some analysts and economists think that this period could be worse than the GFC, in Australia, for the banks. Australia didn't suffer as hard as the northern hemisphere during the GFC.
We can't know how painful (or not) this is going to be. It depends what the governments do. It depends what businesses do. It depends on what individuals do during this. The sooner everyone takes this seriously the quicker it will pass.
Don't forget that major banks have been building their capital levels so that they would meet APRA's 'unquestionably strong' CET1 benchmark. They did meet it, just in time for this crisis.
Regulators regularly stress-test banks to make sure they survive during times like this.
Also, remember that whilst northern hemisphere banks were crunched during the GFC, most of them recovered afterwards. And banks are much better positioned now than the past, with better lending requirements.
The ANZ share price could fall further, but it's already down a lot.
What about the dividend?
Bank Boards need to be prudent during this period. They need enough capital to remain strong and need to be able to keep lending so the economy doesn't halt. For the benefit of the long-term survival of the bank and the economy, I wouldn't be surprised if the banks materially reduce the dividend or pause paying it completely in the short-term – it's what I'd do.
The ANZ share price looks cheap compared to where it was before, but I think there are better opportunities which don't have as much risk in the medium-term.
