MARKETS SPECTATOR: Still bankable

Investors who sell off bank stocks may be missing out, as fundamentals remains strong and banks may have scope to increase their payouts.

Don’t lose the faith. That’s the message bank bulls are telling investors after the stocks fell 3.4 per cent yesterday amid concerns over a falling Australian dollar, deteriorating local economic conditions and a possible end to quantitative easing.

Of the big four banks, Westpac suffered the biggest percentage decline yesterday, down 4.1 per cent or $1.27, to $29.92. ANZ Bank dropped 4 per cent, or $1.17, to $28.13. Commonwealth Bank was down 2.8 per cent, or $1.99, to $69.71. NAB slid 3.1 per cent, or $1.01, to $31.70.

The fundamentals for bank stocks remain solid, according to bank bulls. Loan losses for the banks may rise a “few basis points” because of soft business conditions and higher unemployment, says one analyst, but they are hardly going to make a dint in bank profits.

The treasury and securities units of banks are benefitting from narrow credit spreads enabling these units to book mark to market gains, says the analyst. Moreover, the big four banks’capital ratios are all above 8 per cent, giving them scope to push their payout ratios even higher, according to the analyst. He expects Westpac and CBA to increase their dividends.

ANZ Bank’s gross yield is 7.72 per cent. CBA’s is 7.4 per cent, NAB’s is 8.25 per cent and Westpac’s is 8.12 per cent, according to Bloomberg data. In contrast, the S&P/ASX20 Index’s gross yield is 4.4 per cent.

Still, there are perceptions foreign investors may be dumping Australian bank stocks following some who interpreted Fed chairman Ben Bernanke’s comments Wednesday as suggesting the US central bank may be ready to taper off its quantitative easing program.

Nomura strategist Tim Rocks doesn’t think the Fed is going to roll up QE anytime soon.

Meanwhile, the Australian dollar’s 8.1 per cent decline this month, according to Bloomberg data, indicates foreign investors may be selling off Australian bank stocks in the wake of the local currency’s slide. Foreigners want to take profits before their un-hedged exposure to Australian equities crimps their returns.

ANZ shares have gained 37 per cent in the last 12 months while CBA shares are up 42 per cent. NAB’s stock has climbed 35 per cent and Westpac has risen 47 per cent. 

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