From CLSA:
The latest quarter happened to coincide with a rare period of bank underperformance driven by rising regulatory capital intensity which saw NAB and WBC raise capital , disappointing quarterly releases by WBC and CBA, continued worries about the loan loss cycle, the start of the unwind of the QE driven hunt for yield and inflated PEs.
BJ notes that Domestic retail bought ANZ (+0.3%) / WBC (+0.5%), were steady on CBA but were diluted over NAB’s A$5.5bn May 2015 capital raising.
- Domestic institutions, whom are structurally under-weight sold ANZ (-0.3%), WBC (-0.4%) were diluted in NAB (-0.6%) but bought a little CBA (+0.2%)
- International institutions, whom are underweight but far less so after relentlessly buying over the last 3 years (see Figure 12), continued to buy NAB (1QCY2015: +0.4%, 2QCY2015: +0.8%) were static on CBA / ANZ but were modest net sellers of WBC (-0.1%).
Crucially for BJ’s positive on call on NAB the 4 year uber-rally in the Australian banks up until March 2015 was fuelled by structurally underweight, income seeking international investors chasing Australian bank high dividend payout ratios and a favourable AUD translation carry trade. NAB was the one bank which international investors did not buy over this period as it was deemed “un-investable” given poor management delivered seeming never-ending operational underperformance (EPS Growth FY00 to FY14 NAB: +2%, Peers +174%). It is therefore significant that over the last 2 quarters international investors have commenced buying NAB and that under the stewardship of CEO Andrew Thorburn (from August 2014) NAB it is now deemed “investable” for the first time in 14 years!
- It is also worth noting that ANZ’s register is relatively more dominated by international investors that other banks (ANZ: 27%, CBA: 21%, NAB: 23%, WBC: 23%) which may leave it relatively more vulnerable to profit taking from international investors as the QE unwinds and the A$ weakens.
I can see one more up leg for banks when the next round of rate cuts arrive but that’s the only bull case on the horizon, based purely on a final push for yield by desperately income-deprived local investors. That rally should be taken as the final top into which the great Australian bank short is set.
Or, if longer term shorting strategies are your thing, then you could do worse than right now.
