MARKETS SPECTATOR: Nomura joins the bank battle

Nomura has joined the great Australian bank investment debate.

Victor German, Anthony Hoo and Matthew Dunger, analysts at the Japanese investment bank in Australia, say bank valuations “are looking expensive”.

But unlike rival analysts at UBS who say shares in Australia’s four-largest banks are in “bubble” territory, the three Nomura analysts say: “we continue to expect banks to benefit in the near term from an increasing focus on yield and risk aversion.”

Still, Nomura’s analysts are hedging their bank picks. Citigroup’s analysts have invited investors to “come joint the dance” and buy shares in ANZ, Commonwealth Bank and Westpac. But Nomura only has one buy recommendation among the four-biggest Australian banks, NAB.

“We expect the longer-term outlook for banks to remain challenging, while near-term performance will be supported by improved funding conditions, potential upside from cost initiatives and supportive yields,” say the Nomura analysts.

Nomura has a “reduce” recommendation on ANZ despite the bank’s chief executive Mike Smith signaling this week the bank’s dividend payout ratio will rise to 70 per cent of income.

The Japanese investment bank also has a buy recommendation on Suncorp.