The big four's Achilles heel

All four big banks saw their share prices tumble in trading today, as investors fretted that the eurozone debt crisis could trigger a new global financial crisis.

But attitudes to the big four banks are becoming increasingly polarised, with investors increasingly favouring Commonwealth Bank and ANZ Bank over Westpac and National Australia Bank.

Investors see the Commonwealth Bank a well-run, conservative retail bank that has built up a clear leadership position in technology. And they're being reassured that the bank appears to have engineered a smooth leadership transition between the bank's current boss, Ralph Norris, who is due to retire in December, and the incoming chief, Ian Narev, who previously ran the bank's business and private banking division.

Narev, who is now chief executive designate, has done his bit to calm investor nerves by signalling that he'll adopt a cautious approach to future growth, and dismissing speculation that he's been given a mandate by the bank's board to boost the bank's presence in offshore markets.

At the same time, investors are inclined to look favourably on ANZ's aggressive Asian growth strategy, which is being spearheaded by ANZ boss, Mike Smith.

Investors have faith that Smith, who previously ran HSBC's Asian business, along with the group's commercial banking operations, understands the opportunities, and challenges, that the region offers. And they believe that ANZ is on track to achieve its goal of having its Asian operations contribute between 25 to 30 per cent of its total earnings by 2017.

In addition, both Commonwealth Bank and ANZ score high marks when it comes to assessing the quality of their boards, and their senior executive teams.

But investors are less certain when it comes to National Australia Bank and Westpac.

The NAB has made an aggressive push into the mortgage market, offering lower home loan rates than its major rivals, and offering discounted mortgages online. The bank has also launched a contentious "break-up” campaign in an attempt to clearly differentiate NAB from the rest of the banking fraternity.

As a result, the bank has enjoyed a welcome rise in its customer ratings. However, critics argue that NAB's customer approval ratings still lag the industry leaders. What's more, they say, the bank's mortgage lending is largely being funded by wholesale borrowing, which will prove a constraint on how far the bank can grow its mortgage book.

Investors are also somewhat wary of NAB because it has a larger presence in the troubled UK banking market. They're yet to be persuaded that the bank, which has spent the past decade as a chronic underperformer, has found the key to turning its fortunes around.

At the same time, investors are questioning Westpac's strategy, particularly after its disappointing trading update in August. The bank warned that it is likely to shed staff after its profits in the third quarter fell amid slower lending growth.

Critics argue that Westpac's multi-brand strategy means that the bank will be incurring extra expenses in relaunching the Bank of Melbourne, at a time when most banks are focused on cutting costs.

Sentiment towards the bank has also been dented by speculation over the future of Westpac boss, Gail Kelly, who has been running the bank since February 2008.

At the beginning of this year, Westpac was forced to deny reports that the board had hired an executive search firm to find a replacement for Kelly, because the board had become worried about the bank's direction and about the integration of St George Bank.

In May, Lindsay Maxsted, who will take over as the bank's chairman in December, tried to quell growing speculation about Kelly's future.

"Gail is an exceptional CEO and the strategy that she and the board have pursued since she came to Westpac has been right on the money”, he said in a newspaper interview. "Westpac is in great shape and I'm excited about its future, but everyone knows things are going to get tougher, with regulatory and competition issues putting pressure on returns-on-equity.”