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The Banks
Does It Get Any Better For The Big Four?
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Total Votes: 214
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blacksheep
post Posted: Jul 3 2019, 08:13 PM
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Interesting read - HERE’S SOMETHING FOR BANK INVESTORS TO CONSIDER
extract
QUOTE
The big four have capitalised significant amounts of spend for many years, which they classify as software investment. Every 3 or 4 years, they generally take a large write-down of this asset, and the cycle starts all over again. These periodic impairment charges also act to boost reported earnings by reducing the amortisation charge in future periods. While the companies generally claim these are non-cash charges, this is a misleading statement as they reflect a write-off of cash investment/spend in prior periods. So, while they do not necessarily relate to cash payments in the current period, it is still a charge against real capital that was invested by the company.

Because the write-downs are generally treated as a one off by the market, this spend is quite often never really fully factored into analyst valuations.

read more - https://rogermontgomery.com/heres-something...rs-to-consider/



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The herd instinct among forecasters makes sheep look like independent thinkers. Edgar Fiedler

If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter. George Washington
 
nipper
post Posted: Jul 2 2019, 04:54 PM
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In Reply To: nipper's post @ Jun 28 2019, 11:08 AM

QUOTE
so, how long can this ... rally last?

Not long.... the "fractional banking" system doesn't lend itself well to declining interest rates.
QUOTE
Investors fled the major banks over fears their margins would be squeezed after the Reserve Bank of Australia cut the cash rate to a record low 1 per cent.

... The local sharemarket had been trading firmly higher through the day and initially jumped after the RBA cut rates to a fresh record low of 1 per cent. However, sharemarket's gains were crimped after investors in the major banks headed for the hills.

"The closer interest rates get to zero the larger the impact of each rate reduction on banks net interest margin," said Lazard Asset Management portfolio manager Aaron Binsted.

"In this low credit growth environment, a further rate reduction, even with less than 100 per cent pass through to borrowers, is enough to dent earnings growth across the big four."

The major banks wiped a collective 21.8 points from the benchmark index. Commonwealth Bank shares fell 1.5 per cent to $81.05, Westpac slid 1.6 per cent to $27.93, ANZ closed 1.5 per cent lower at $27.87 and NAB dropped to $1.2, down 26.49 per cent.

The smaller lenders were also weaker.
market was up, otherwise.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
blacksheep
post Posted: Jun 28 2019, 11:56 AM
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In Reply To: nipper's post @ Jun 28 2019, 11:08 AM

Discussion on Banks a while back (June 11) between Jeremy Hook from TMS Capital hosts Jun Bei Liu from Tribeca Investment Partners and Sam Granger from Totus Capital, who give their take on whether the banks are "back in town," while also naming their standout pick among the Big Four.- conclusion NAB was standout pick.

QUOTE
Well our panel is joined with the enthusiasm with the bank sector of late, and thinks there is an opportunity there, and particularly on NAB.


Read more - Are the banks back in town? - https://www.livewiremarkets.com/wires/are-t...campaign=buffer



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The herd instinct among forecasters makes sheep look like independent thinkers. Edgar Fiedler

If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter. George Washington
 
nipper
post Posted: Jun 28 2019, 11:08 AM
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In Reply To: nipper's post @ May 27 2019, 04:32 PM

So, how long can this Bank share price rally last? CBA nudging $84, ANZ and WBC $28.50 and NAB closing on $27.
- No fundie has a good word to say, and yet?




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: May 27 2019, 04:32 PM
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comments from the Watermark Funds Management quarterly report.
QUOTE
Chief investment officer Justin Braitling has a dour view of the future stock performance of the big four banks.

"With the Coalition returned to government, it is less likely the 50 recommendations of the royal commission will pass parliament. Good news for the major banks, though I suspect any relief rally will be temporary. Factoring in a modest credit cycle at some stage in the next five years, and ongoing deleveraging in the household sector, we could easily see a lost decade of earnings growth for the Australian Banks.

Profits peaked in 2015 and will still be 12 per cent below that level in 2023 under our base-line scenario. With no earnings growth for as far as we can see, Australian bank shares are going no-where in the medium term. Enjoy the dividends, because that is all you are likely to get."




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

Said 'Thanks' for this post: early birds  
 
early birds
post Posted: May 20 2019, 10:24 AM
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In Reply To: nipper's post @ May 13 2019, 11:04 AM

4 majors all jumped up for good old short squeeeeeezzzzzz




Said 'Thanks' for this post: nipper  
 


nipper
post Posted: May 13 2019, 11:04 AM
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QUOTE
Banks are weighing on the Australian sharemarket after CBA’s remediation charge and ex-dividend falls in the sector.

A 3 per cent fall in Commonwealth Bank is taking 15 points off the index, accounting for about half of a 31 point or 0.5pc fall to 6280.

ANZ and MQG are down 3.8pc and 3.9pc respectively ex-dividend, but they have only fallen by the value of their grossed-up dividends.

CBA’s remediation charge selloff is rubbing off on NAB, with a 1pc fall today, while WBC is down just 0.4pc cum dividend.
- and, something different, WBC will pay it's dividend this FY, on 24 June. Enjoy the imputation credit.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

Said 'Thanks' for this post: early birds  
 
nipper
post Posted: Apr 16 2019, 04:50 PM
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QUOTE
"Overall, there appears to be greater-than-usual uncertainty about the future profit outlook for banks because of the increased scrutiny on banks and the weaker outlook for property prices and housing credit growth,” the central bank said in the Financial Stability Report on Friday.
(( https://www.rba.gov.au/publications/fsr/201...cial-system.pdf ))

The RBA pointed out in its report that the banks’ “resilience and capital generation has been underpinned by high profits over many years. However, profits have remained broadly steady since 2014.”

.... “The absence of growth mainly reflects a fall in non-interest income as banks have sold or scaled back a number of their fee-generating activities, while the contribution from falling bad and doubtful debt charges is less than in the past. “More recently, a narrower net interest margin (NIM) due to pricing competition and higher funding costs has reduced interest income growth. “In addition, operating expenses have increased due to higher compliance, IT and customer remediation costs. As profits and capital have both steadied, so too has banks’ return on equity (ROE). ROE is now a few percentage points lower than its historical average but remains high compared with international peers.

“Analysts expect minimal growth in bank profits over the year ahead. Net interest income growth is expected to be below average as credit growth slows further and NIMs remain under pressure. Bad and doubtful debt charges are also expected to pick up a little from their current very low level. The final cost of remediation for misconduct identified over recent years is uncertain and could exceed existing provisions, while spending on compliance and IT may remain elevated in order to address some of the recommendations of the Royal Commission.

This is costing the banks with their funding costs bumping up:

“Heightened uncertainty about future profitability has raised Australian banks’ implied cost of capital, as measured by the forward earnings yield on their stocks. Earnings yields have moved higher for bank stocks globally, suggesting that a reduction in global risk appetite for banking stocks has also been a factor,” the RBA said. “The rise in banks’ forward earnings yields has been about a half percentage point more over the past year than forward earnings yields for other Australian stocks. This widening gap continues a pattern of the past four years. Banks’ current forward earnings yields are now above their pre-crisis average, despite a large decline in risk-free rates. ”

And then there are the costs flowing from the Hayne Royal Commission:

“Responding to the Royal Commission’s recommendations will also increase financial institutions’ costs, but will increase system resilience in the long term. In a sense, this corrects past underspending on systems or unfair revenue collection. In the near future, firms will incur further remediation costs relating to the charging of ‘fees for no service’ in the wealth management industry; these already exceed $1 billion. Revenue in the life insurance industry could also be significantly impacted. “Costs will also rise as firms correct for underspending on information technology (IT) systems in the past, compliance requirements increase and legal fees rise as regulators take more legal enforcement. There could also be payments resulting from lawsuits. The Australian financial system is well placed to manage these challenges, given it is well capitalised and generally starting from a position of strong profits,” the RBA said in the report.

ANZ, Westpac and NAB are all due to report their March 31 first half figures and in the wake of the weak performance of the Bank of Queensland’s interim results last week. Investors are looking for flat figures and will again concentrate on the level of dividends. The Bank of Queensland cut its interim by four cents a share saying the decision “reflects the challenging revenue and cost environment that BOQ and the industry face.”
https://www.sharecafe.com.au/2019/04/16/rba...or-major-banks/



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Dec 29 2018, 04:41 PM
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QUOTE
Fancy playing in the eye of the storm?

The housing downturn and remediation costs related to the misbehaviour uncovered by the banking royal commission are good reasons to avoid our four pillars.

But there’s also an argument that the woes are already embedded in the valuations of our picks, Commonwealth Bank of Australia (CBA), Westpac (WBC), ANZ (ANZ) and National Australia Bank (NAB).

For the first time in a decade, broker Citi has upgraded its view on the banks to overweight, which is broker speak for “worth a punt”.

Similarly, Baillieu Holst believes the bank sector is gaining support at current marked-down levels and notes that NAB and Westpac are trading on dividend yields of about 11 per cent.

Broker Morgans sees 45 per cent upside for Westpac, which has the “most compelling valuation and relatively low risk profile”.

Meanwhile money factory Macquarie Group (MQG) continues to generate good deal flow, especially from wholesale investment banking. Joseph Palmer & Sons director Alex Moffat says Shemara Wikramanayake has settled into the plush CEO chair nicely and looks to be replicating the successful reign of predecessor Nicholas Moore.

NAB’s UK offshoot Clydesdale Bank (CYB) is trading at about half the valuation of its Australian peers. There are reasons, of course, given the Brexit saga and remediation costs relating to past misdemeanours. Arguably, the problems are factored in and a Brexit breakthrough would ignite the stock...
...from The Australian's 50 ideas for 2019



--------------------
"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

Said 'Thanks' for this post: early birds  
 
early birds
post Posted: May 18 2018, 09:32 AM
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Benchmark interest rates are rising and while it’s still only early days in the banking royal commission, the indiscretions are mounting, as are likely costs. The banks might feel the pinch but ultimately is going to be the customers that have to pay.

Since the US Federal Reserve first flagged higher US interest rates, I’ve been suggesting to our investors to add floating rate bonds and other securities to their portfolios.

The theory being very low interest rates – in some countries below zero – could not go much lower even if the Fed didn’t raise interest rates in the timeframes expected and the risk was to the upside. That is higher interest rates were anticipated and a good way to hedge against them was to invest in floating rate securities linked to benchmark rates.

Over the last six weeks, US benchmark rates have risen sharply. Given that the major financial institutions borrow US dollars via the bond market, costs of funding has increased.

There’s no specific event that has triggered the rise in benchmarks, but markets attribute it to a number of factors including:

Greater supply of short dated US Treasury bonds since the government agreed to increase its debt ceiling, they’ve increased short term borrowing, pushing up short term interest rates competing for limited investment funds.
New US tax legislation making it easier for US companies to repatriate funds back to the US. These funds were mostly held in short term investments.So, the exodus has left a vacuum and higher rates were needed to tempt other investors to satisfy market needs.
Changes to US benchmarks then fed through to our own benchmark bank bill swap rates.

The Australian 3 month bank bill swap rate, commonly used in pricing loans, is also up over 0.3 per cent. The bank bill swap rate is mostly a market observed rate of where banks will lend to each other and are indifferent between fixed and floating interest rates securities.



Source: Bloomberg, FIIG Securities

A 0.3 per cent rise doesn’t sound like much but borrowers on variable rate mortgages will be paying more interest, the cost of personal loans and credit card interest rates could also rise if the increase is sustained or moves even higher.

Meanwhile banks with thousands of fixed rate interest only loans will have to suffer the rise, impacting profit. They’ve already started to lift borrowing rates and while it’s getting more expensive for banks to borrow from each other and in overseas markets, they’ve been somewhat offsetting higher costs by keeping domestic deposit rates the same. Yet again it seems that customers are bottom of the food chain.

Sound bank capital management is important and can reduce the impact of higher benchmark interest rates. The banks generally should have hedges in place for this type of event, but regardless, costs should rise until fixed rate loans unwind, so not all costs will be able to be offset immediately by higher borrowing rates.

Ultimately, net interest margins and profits should be affected. Not a positive sign for higher shares prices.

Banking Royal Commission is likely to be another drain on profit

Revelations of misconduct by the major banks and AMP at the royal commission reminds me of reality TV – much of it is predictable, you don’t really want to watch, but still it’s compelling!

A natural step for the institutions is to shrink their businesses and ‘stick to their knitting’. We’ve already witnessed this with the sale of CBA wealth management businesses Colonial. Hiving off the troublesome operations seems like a good idea. Management have not had enough oversight and smaller, more concentrated operations should be easier to manage. Sale proceeds will increase capital and capital ratios, to satisfy APRA requirements.

The big question is the cost. These institutions need to be taught a lesson. It’s hard to put a number on likely penalties, possible legal suits and more stringent compliance requirements.

But there should be consequences and they are likely to hurt.
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worth bit of time to read into it if you are a bank investor!!



 
 


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