Banks big on yields, small on stock gains

Now, it does not seem to have become any better on the business side and bank stocks are just not what they used to be as a collective.

Westpac shares, for example, dropped below $21 yesterday for only the second time in two years and at $20.77, it was their lowest closing price since July 2009 when the world was supposedly a grimmer place. It is a reflection of the same lack of confidence that Westpac keeps turning up in its consumer sentiment surveys - and which is eating away at the foundations of local retailing.

If you are working on a yield argument as an investor - dividends as a percentage of the cost of the shares - Westpac is now sitting at above 10 per cent. Of the other members of the big four, National Australia Bank and ANZ are above 9 per cent and Commonwealth Bank comes in at about 8.8 per cent.

You cannot get these returns on your money if you park it with them in term deposits, even if you are prepared to leave it there for five years - about 6.6 per cent is the best rate going around.

So the income on bank stocks at the moment looks attractive. The growing problem is that the market frame of mind is so skittish, there are no guarantees you can liquidate an investment in bank shares at a profitable price - something unheard of before the slow-motion financial collapse.

ANZ shares, which also finished under $21 at $20.98, have retraced to their worst level since July last year. A dip below $20 will take them to 2009 low-water levels.

NAB and Commonwealth Bank are "only" at the levels seen last Christmas and both still have a bit of a margin before hitting 2010 lows, and even more latitude before reaching 2009's doldrums.

For the smarties saying "Yeah, but the whole market's cactus", Insider can assure them that the S&P/ASX 200 index is actually 12.5 per cent above its level this time in 2009 when banks began their price recovery.

For Westpac's gains to mirror the broader index, its stock ought to be north of $23 a share. On the same measure, NAB should be above $25 a share compared to yesterday's $23.46. CBA and ANZ, though, have outdone the index. The former at $49.02 only needed to be at $45 to beat the index, while ANZ's $20.98 is solidly above the $19 comparative.

WESTFIELD WOES

While bank shares are threatening two-year lows, the Lowy family Westfield Group has had no trouble finding them.

There is little doubt the decline in the shopping mall developer and owner's stock is a rub-off from the plunging retail sector - particularly when a handful of its local, small-scale rivals are finding themselves in the hands of insolvency practitioners.

Westfield's dip below $8.50 yesterday in the wake of David Jones's "unprecedented" sales fall is the first time the stock has been at those levels since June 2009 and reduces it market value to below $19.5 billion.

Even if Insider adds back the roughly $8 billion attributable to the Westfield Retail Trust assets spun out late in 2010, the best that can be said is that Westfield Group has traded sideways since 2009.

While Westfield runs one of the tightest retail landlord ships across the globe, the hard truth is that some of its anchor tenants are hurting big time - and that must cast doubt on a whole lot of things ranging from the simple rental income all the way up to the retailers' participation in supporting shopping mall developments and refurbishments.

Consumers shop at malls that carry their preferred brands (and with which most have some form of loyalty card deal).

The pressures must now be enormous on Westfield and others to sacrifice profit margins in order to give key retail tenants a helping hand in fitting out new and old sites.

No landlord can afford to board up shops in a centre for too long - it not only means loss of income but makes that mall far less of a "destination" for shoppers.

NO CONSOLATION

Away from the malls but still among the mauled is Consolidated Media Holdings which is one of Foxtel's three shareholders and a co-bidder for regional pay-TV group Austar.

ConsMedia shares have not looked up for some time and the decline has accelerated since the terms of the $1.52 a share, $1.9 billion buyout of Austar were confirmed.

It cannot be said that ConsMedia has overwhelmed its investors with information about the Austar offer, although that is not surprising since so much hinges on regulatory approvals both here and in the US.

ConsMedia holds what was once the Packer family's 25 per cent stake in Foxtel through Premier Media and has told the market it has arranged financing through ANZ and BNP Paribas for its $225 million share of funding the deal.

Until now, the company's balance sheet has stood out for being unencumbered by debt, so Insider suspects the markdown in its stock from $2.80 to $2.40 is a market reflection of that shift, plus the several months of uncertainty until buying Austar clears all its regulatory hurdles.

What it does mean now is that ConsMedia's market value has dropped by almost a third since news of Foxtel buying Austar broke out last year.

insider@fairfaxmedia.com.au