UBS reveals which ASX 200 bank shares are the most attractive before their results

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It’s coming up to reporting time for many of the S&P/ASX 200 Index (ASX: XJO) bank shares. This may be a good time to reflect on the industry and take on board which ASX financial shares the broker UBS likes.

There are plenty of banks to look at in the ASX 200, including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Macquarie Group Ltd (ASX: MQG), Bank of Queensland Ltd (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

Is this a good time to invest in ASX 200 bank shares?

According to reporting by the Australian Financial Review, the broker UBS is cautious about the outlook for ASX 200 bank shares because they’re facing intense competition which is hurting the net interest margin (NIM).

The NIM tells us how much profit a bank is making, in margin terms, on its lending. It compares the revenue (loan rate) to the funding cost (like term deposits and savings accounts).

UBS analyst John Storey said:

We have a cautious bias based on the balance of our recommendations on the sector with around 10% downside on average across our coverage.

Our conviction sits more on the short side for the banks going into this result season.

According to the AFR, the analyst said that banks were trading at a small premium, compared to a 16% discount over the past 15 years.

While UBS is negative on most of the ASX 200 bank shares, it does have a neutral rating on Macquarie shares and ANZ shares.

The UBS analyst Storey then explained why the broker likes the ASX 200 bank shares of Macquarie and ANZ:

We like Macquarie’s structural growth story and ANZ offers some upside based on a cheaper relative valuation.

Based on the earnings estimate from UBS, the ANZ share price is valued at 13.5x FY24’s estimated earnings and 13x FY25’s estimated earnings.

Turning to Macquarie, broker UBS’ numbers suggest that the Macquarie share price is trading at 23x FY24’s estimated earnings and 21x FY25’s estimated earnings.

All of the ASX 200 bank shares lend to Australian households, but there are some differences between them that set them apart. For ANZ, one of the main things to know is that it’s in the process of trying to acquire the banking operations of Suncorp Group Ltd (ASX: SUN).

Macquarie has the most differentiated business model – it has a banking and financial services (BFS) division, an asset management division, a commodities and global markets (CGM) division and an investment banking segment called Macquarie Capital.

As we get close to the banking results, it seems UBS is not optimistic about any of the valuations.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.