Megabank or Eurobank?

By Chris Becker

With the National Australian Bank (NAB) division of Megabank reporting flat 3Q trading results this morning, via Pragmatic Capitalism comes this interesting chart from Bank of America:

 Given the fact that the Euro crisis is never ending (thanks to a lack of political compromise) it’s unlikely that the timing on this one will be anything remotely similar, but this statistic just jumped out at me as a sign of incredible skew in a large market.  It’s food for thought and as always, certainly not an investment recommendation, but a very nice 30,000 foot view of the collapse in European equities during the last few years.

The European financial sector is now smaller than Australia’s!  Now that has to make you go “hmmmm”.

This chart is getting the hearts of contrarian’s fluttering – but the question is do you go long Euro banks or short Aussie banks? Hmm indeed.

Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest.

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  1. Nope, not buying it.

    Define “financials”. Is the definition the same across all markets?

    Also, how much of this is due to the change in relative value of the EU vs. AUD?

    • I don’t buy it either Phil. Even if we applied the same formula to depreciating assets where would we be, and think housing for a start. The EU banks are writing down assets, and are involved in ongoing fire sales, so they are shrinking, but no such assessment of assets by the Aussie banks is is happening as far as I know. Due to the extreme opaque nature of our banks we’d never know anyway what the true situation is.

      If anyone can prove the BoA figures by international accounting standards are correct I’d be amazed.

  2. Deutsche Bank in 2007 had a market cap of US$64b now its $28.7b, CBA is back close to its highs at US$90b some 3 times bigger than the might of Germany’s high profile Bank.

    Hardly surprising, after all CBA is the country’s largest home lender and houses in Australia double every 8 years right !

    • And that CBA market valuation having been boosted by the fact the APRA says local banks are concealing the true level of mortgage defaults…

      How long before ratings agencies downgrade Megabank to match Mac @ BBB, only 1 spot away from ‘Junk’.

      According to Moody’s if it wasn’t for ‘implicit’ Gov backing ANZ’s ‘true’ rating is already JUNK (B-)

      • You should get informed before you make (ridiculous) statements like that.

        ANZ’s long-term issuer rating is AA- or equivalent across the board. Implicit govt backing is said to add 2 notches to this rating. Drop AA- by 2 notches and I can assure you it doesn’t equal B-

  3. Given most Eurozone banks are most likely insolvent, it shouldn’t be too surprising.

    You think Aussie house prices are a bubble…looking at the chart of Eurozone banks pre 2007 – now THAT’S a bubble!