THE DISTILLERY: Freewheeling financials

Jotters are nervous about Australia's surging bank stocks, with one likening their position to miners at the peak of the boom.

After a week in which two of Australia's big four financials delivered bumper profits, and soaring stock prices got analysts talking about a bubble in the sector, our commentariat still has banking on the brain. Some scribes spent the weekend worrying financial stocks could come tumbling down, while others think the institutions' big profits may become a political problem. Elsewhere, there are concerns about a potential Asian economic crash, and worries Sam Walsh won't have an easy time turning around Rio Tinto.

First up, at Fairfax, Malcolm Maiden says the question is not so much whether banking stocks are wildly overvalued, but whether they can continue to rise aggressively. He thinks the government might get in the way.

"As bank profits and dividends continue to rise strongly, the banks have less political room to justify withholding part of any future Reserve Bank rate cut (the odds are about 50-50 that the next cash rate cut will come on Tuesday, when the central bank's board meets), and a growing temptation to announce a tactical variable home loan rate cut...A mini variable loan rate war would not dent the long-term appeal of the banks in share portfolios, and in my opinion would not prompt an investor exodus. But it would trim interest margins in the short term and perhaps suck some of the heat that has built up in bank shares this year."

At The Australian, John Durie is a little more concerned. He thinks banks might be in the same overvalued position that BHP Billiton and the other miners seemed to be in at the height of the resources boom.

"There is also no reason to think bank stocks will collapse overnight, in part because the same macroeconomic conditions that put them there still exist, but there is plenty of reason to approach them with some caution."

Peter Wells strikes a similar tone at The Australian Financial Review: "If there was ever a time in the past four years of ultra-loose monetary policy to worry about whether asset prices are in a bubble, perhaps it ­is now."

Meanwhile Tony Boyd, the AFR's Chanticleer columnist, says there's something ominous lurking in earnings results delivered by Macquarie Group and Westpac Banking Corp. 

"Both institutions are going through an extended period of suppressed demand for their central product offerings. For Westpac, it’s the vanilla business of lending money to households and business. For Macquarie, its equities securities business and investment banking operations are facing the quietest periods in a decade."

If the trend is structural, rather than cyclical, Boyd expects executive pay packets will take a hit.

In the political pages, writers are annoyed at both major parties.

The AFR's Jennifer Hewett hits out at the Coalition's mocking campaign ads, which she argues will do little to encourage voters yearning for a more sophisticated or positive message from the opposition.

And Terry McCrann, writing in The Australian, launches a scathing attack on Julia Gillard for her "outrageous" and "extremely damaging" attempt to "govern from beyond the grave". He's writing here about her locking in policy and outlays that will "bind or limit" successive governments.

Fairfax's Ross Gittins, meanwhile, examines the complex forces that are squeezing Australian company profits – and the odd view that Tony Abbott will somehow be able to fix everything.

The Australian Financial Review's Alan Mitchell looks beyond Australia's shores for possible political and economic triggers for a feared Asia-Pacific crash. He says Japan's aggressive monetary and fiscal stimulus "may bear close watching".

Finally, Matthew Stevens has his eye on Sam Walsh at Rio Tinto. The AFR columnist doubts the new chief's claim that the company's recovery is going to be easy.

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