GS dismisses bank shorting talk

Goldman Sachs says foreign investment in Australian bank shares is on the up.

Goldman Sachs has squashed negative hype that surfaced last week at a Bank of America Merrill Lynch investment conference concerning our "big four" banks.

Head of Australian Equities at Goldman Sachs, Dion Hershan dismissed suggestions that hedge funds were shorting Australian banks. The short interest, essentially a bet the share price will fall, has contracted. This is contrary to the message Bank of America Merrill Lynch chief global equities strategist Michael Hartnett conveyed at his bank's conference in New York.

In fact, Hershan explained he feels international investors have taken comfort in Australian banks due to their resilience. Unlike offshore peers, our lenders have not had liquidity concerns or endured asset write downs and crippling bad-debt charges.

The expectation from Hershan is for the Australian banking sector to continue grinding along, much like the last financial year.

Hershan’s comments about international investors are in line with the change we are slowly seeing on the register of Australian banks – more foreign investors are muscling their way in on the preferred holdings of mums and dads.

The interest in Australia’s banks is driven by globally low interest rates and a weakening Australian dollar. Our banks have proven themselves to be cash cows, offering growth along the way. These characteristics resonate with institutional investors in their search for what is becoming an elusive combination: yield and growth.

A recent report by regulator APRA showed Australian banks have already met certain capital requirements not due to come into effect until 2016.

The big four banks plus the Bank of Queensland (BOQ) and Bendigo Bank dominate the ASX 200, accounting for 30% of the index. That puts them firmly in the spotlight of investor and analyst attention.