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Does It Get Any Better For The Big Four?  

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Bank shares jumped after the Federal Reserve announced the banking industry could easily withstand a severe recession. The Fed, in releasing the results of its annual stress test, said the 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn. The decision cleared the way for the banks to raise dividends and buy back more stock, which was suspended during the pandemic.




inho------ our big banks still have at least over 10% upside left in them from valuation point of view, and TA seems support that view.


but DYOR as always.



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  • 2 weeks later...
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  • 2 weeks later...

Among key trends in Australian banks, one factor stands out https://www.firstlinks.com.au/key-trends-au...ctor-stands-out


Bad debts were less of a factor than we expected on the back of a positive economic outlook thanks to the amount of money that has been thrown at the economy by the central bank and the Federal Government. ....


On the operational part, the market seems to be shifting back to analysing the top line on revenues and credit growth, which is not growing as quickly as analysts thought. On a net basis we are still seeing anaemic credit growth from households and while business lending has shown some signs of improvement, we still need to see how that flows through over the next three to six months... By our estimates, each of the major banks is sitting on between $7 and $10 billion worth of capital that can be distributed back to shareholders. So far, the banks in general have behaved rationally and have managed margins and returns. We expect capital return and capital distribution to be the key narrative over the next six to nine months....




I am ... sceptical of the neobanks and insurtechs than some of the other participants in the market. They need to get scale quickly. They need to reduce the cost of acquisition of a customer and they need a steady state capacity level, which can drive operating leverage. It is great that disruptors are offering a seamless customer experience but it's very generic and it is a commoditised offering on savings.....


My investment logic for holding Big Four bank shares


... While the four majors have different strengths and operating divisions, all of them except Westpac are now a lot simpler than they used to be. Westpac still has specialist businesses that it needs to get rid of. CBA has sold its insurance businesses. ANZ does not have a wealth or a life business anymore. NAB is a pure bank now, it does not have a UK bank and it does not have MLC or a life business.

They are much cleaner, core banking businesses but they are still large and complex. And it is not just loans, they are dealing with people and their lives and their assets and their businesses. More than ever, franchise value is tied to how the market and how consumers perceive these brands.


Current take on the Big Four

NAB and CBA exhibit strong core themes that I want to see in a bank to capitalise on an improving environment. They exhibit the best franchise momentum for revenues and for volumes. NAB has managed its costs quite well while CBA, historically, has not cared as much about costs because it always grew its top line faster than costs. But this also offers CBA the biggest opportunity if it gets serious about taking costs out. Both banks are sitting on extremely healthy levels of capital, so if they see the opportunity to drive hard for growth, they do not have to worry about a lack of capital. So franchise momentum is critical at this juncture.


ANZ has seen its mortgage loan momentum slow, but it is also a much simpler bank under Shayne Elliott than it was six or seven years ago. I believe that ANZ has shown the most consistent discipline on costs compared to its local peers. The key is top line momentum and that is a watching brief to see if ANZ can stabilise and turn that around.


Westpac is the one that scares me, and I do not use those words lightly. There is a really important chart <see link> in the most recent Westpac result presentation. It shows Net Promoter Score momentum for Westpac and the St George brands versus the major peers in the market. Westpac cost strategy means it needs to get leaner quickly, because its competitors are not standing still. It must take costs out at a core level by about 16% over the next three and a half years, while at the same time stabilising the overall business. A multiyear 16% cost reduction does not come without cutting people.

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Key banking regulator APRA has moved quickly to support banks who defer or offer support to customers who are in difficulties in the Sydney and Victorian Delta variant lockdowns.


The move will ease the burden on the banks to increase existing loan loss reserves.




step in so fast eh?? :o



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  • 4 months later...

One of the largest holders of Bank stocks, because of its $9 Billion size, is AFI, the largest Listed Investment Co

There is an article discussing them here on SC:


... the major banks remain attractive to AFIC as part of a diversified portfolio given they have become simpler operations, divesting businesses such as wealth management and insurance to concentrate on their core banking activities. This reduces risk, and with good management teams in place, it should produce better returns than these activities.

Presently, we rate Commonwealth Bank as the best quality bank, so we have our biggest holding there, with smaller holdings in Westpac, NAB and ANZ. Westpac share price has under performed more recently and consequently it looks to us to be the best relative value at this point, noting it needs to continue to improve its operations and risk and compliance measures, and reduce costs. However, we believe Westpac still has a good franchise and sound competitive positioning in the sector.

..... The banks made significant provisions for bad and doubtful debts in the early stage of the pandemic. But the macro-economic environment has been very supportive, with interest rates remaining very low and government fiscal policy helping businesses and consumers. Revenue growth has rebounded faster than market expectations out of the COVID lows of early 2020. The economy is in pretty good shape considering the extent of the pandemic lockdowns.

Another feature of the big banks recent financial results was that they have been writing back some of their bad and doubtful debt provisions, which has benefited net profit and, by extension, dividends. We expect this trend to continue until at least to the next results, although the banks will be carefully assessing the health of their borrowers as government support starts to decline and eventually ceases.

Most of the growth for the major banks will come from both mortgage and business lending, which is consistent with the recovering economy. The housing market is very strong now but likely to moderate. On the other hand, business credit is likely to pick up. If credit growth is four to five per cent and costs are contained, the big banks should be able to generate earnings and dividends growth of three to four per cent. That would be a good result.

The impact of increased inflation is an interesting one for the banks. A moderate increase in inflation leading to a gradual increase in interest rates is generally good for banks. Assuming there is a healthy demand for credit, and all else being equal, the banks’ net interest margins would expand as the cost of funding generally lags increase in loan rates. On the other hand, if inflation is very high, attendant increases in interest rates are likely to produce a slowdown in the housing market, and you may see an increase in bad debts across their customer base producing reduced profitability...

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