MARKETS SPECTATOR: Banks rebuke the bubble blowers

ANZ Bank and Westpac are hosting and visiting investors at home and abroad to reassure them their stock prices are fine

ANZ Bank and Westpac in coming weeks will try to convince investors to keep the faith. ANZ Bank has already embarked on a series of meetings with institutional investors. Westpac is meeting investors this week. Its chief financial officer Philip Coffey will go to the US to argue the 57 per cent gain in the stock in the last 12 months is not overdone.

Coffey has an unlikely ally - ANZ chief executive Mike Smith.

“Are they (banks) fundamentally overvalued? I wouldn't say so because relative, they are performing better than many of their global peers,” Smith told ABC TV’s Inside Business program.

ANZ and Commonwealth Bank shares are both up 43 per cent in the last 12 months. National Australia Bank is up 45 per cent.

Smith and Westpac have been arguing that there is no sign the search for yield among global investors is ending. Westpac argues that its yield including franking credits is now about 8 per cent. Its rivals are also offering total yields, including franking credits, in the same range. That may be particularly appealing to investors. The Reserve Bank may cut its benchmark cash rate to as low as 2.5 per cent this year.  

What sticks in the claw of Smith and Westpac chief executive Gail Kelly is talk of a bubble in Australian bank stocks. UBS analysts reckon the stocks are in bubble territory. Smith, not surprisingly, rejects such talk.

“There is a huge amount of money chasing fewer and fewer good quality, high-yielding assets,” Smith said.

“That creates an increase in the (bank share) price.”

But stocks, no matter how good they may appear, don’t go up forever. At 1600 AEST on Friday, Westpac’s shares fell 35 cents, or 1 per cent, to $33.55. Earlier in the day Westpac declared an interim dividend of 86 cents supplemented by a further 10 cents special dividend, both fully franked.

As UBS argues in its May 1 research note: “Bank dividends are a result of significant leverage; they are not annuities comparable to term deposits.”

At 1015 AEST today, Westpac shares lifted 1.1 per cent to $33.92 and ANZ gained 0.54 per cent to $31.77.