Big four up despite global downgrades

ROBUST yields helped Australia's banks outperform the sharemarket this week, despite ratings agency Moody's downgrading

ROBUST yields helped Australia's banks outperform the sharemarket this week, despite ratings agency Moody's downgrading 15 of the world's biggest banks.

Over the past five trading sessions, the banking sector has risen 1.2 per cent, compared with a

0.2 per cent drop in the benchmark S&P/ASX 200 Index.

Even yesterday, in the aftermath of the Moody's downgrades, Australian finance stocks

outperformed the broader index, falling only 0.6 per cent, compared with a drop of nearly 1 per cent on the benchmark index.

Among the big four, ANZ closed flat for the week but National Australia Bank climbed 4.8 per cent, Westpac gained 2 per cent and Commonwealth Bank rose 1.6 per cent.

"The reason the banks are so attractive at the moment is their yield," said Matt Sherwood, head of investment market research at Perpetual Investments. "There appears to be below-market average earnings risk."

Australian banks' dividend yields are in the area of 6-7 per cent, which can be as high as 10 per cent fully franked.

The big four have also maintained their AA-ratings with stable outlooks from the credit ratings agencies, even as global giants such as JPMorgan and Morgan Stanley were downgraded by Moody's over Thursday night.

Moody's in its ratings review said the long-term prospects for banks' profitability and growth were shrinking, and said it was especially concerned about banks with significant financial market businesses.

Despite not being hit by the downgrades, Westpac has made contingency plans in case wholesale funding markets dry up due to global jitters.

Westpac chief executive Gail Kelly said the situation in Europe was concerning, but it was not a


"We planned for greater downgrades, we planned for continued volatility, we planned for, at various times, markets simply being unavailable," she said.

Australian banks are less reliant on overseas fund markets due to soft loan demand and higher levels of local savings.

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