The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price could be facing more pressure after a top broker downgraded its shares.
The ANZ Bank share price is already the worst performer among ASX big banks over the past year with a drop of over 5%.
While some may argue that the bank therefore represents better value, Morgan Stanley disagrees.
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Why the ANZ Bank share price got downgraded
The broker cut its recommendation on ANZ Bank to equal-weight from overweight. This was largely due to the belief that bank revenue will keep falling.
"We expect ANZ's revenue to decline again this year due to market share loss, falling margins and lower non-interest income," said Morgan Stanley.
"Its 3-yr revenue CAGR is also likely to be below the major bank average, given weaker volume growth and more headwinds from increasing competition for deposits in Australia and New Zealand."
Feeling the squeeze
If that wasn't enough of a concern, its margins could be squeezed by rising costs too. The broker is unconvinced that ANZ Bank can deliver on its cost cutting promises in the near and medium-term.
This is due to emerging inflation that is impacting every sector and ANZ Bank's ongoing need for investment.
Management is likely to stick to its FY23 exit rate target of $7 billion for normal operating expenses. But Morgan Stanley reckons that might be circa $400 million too little over a three-year period due to inflation.
"The need for higher ongoing investment could also see 'change the bank' costs stay >A$1bn for longer," said the broker.
"We forecast total expenses of ~A$8.5bn in FY23E and ~A$8.4bn in FY24E."
Other reasons why ANZ Bank could struggle
There are a few other niggling headwinds that could weigh on the ANZ Bank share price ahead of its results in May.
Morgan Stanley believes that the bank is not only losing a share of the mortgage market, but also business banking.
ANZ bank is also expected to benefit the least from the rising RBA cash rate compared to the other big banks.
What is the ANZ Bank share price worth?
The broker added that while ANZ mortgage run-off (loss of borrowers on its books) has stabilised, it will struggle to win business without sacrificing margin.
Those hoping that its IT initiative, ANZ Plus, will inject new life into the franchise will be disappointed too, according to Morgan Stanley.
The broker cut its 12-month price target on the ANZ Bank share price to $28.60 from $30.30 a share.
