Broadly, all the Big Four enjoyed a run from 2011 until early this year, but since then they have slid quite abruptly.
There were two reasons for the fall. The first was that the Australian Prudential Regulation Authority was tightening the required Tier 1 capital ratios for the big banks to bring them into line with overseas requirements.
The second was that the APRA move prompted a whole chorus of Jeremiahs to begin singing that the banks were overvalued.
The AFR has rolled out its biggest gun of all, the legend Trevor Sykes, to defend the banks:
Maybe they were, but not by much. The Big Four look as sound as any in the world. They certainly look stronger than most of the Continental banks which are holding sovereign debt of shaky European nations.
Indeed, a cynic would suspect that the higher Tier 1 requirements here are merely an exercise in backside-covering by APRA just in case there is a banking panic at some later time.
Our Trevor is old school and this is an old school call, with not a breath of macro. The banks will get another run yet as rate cuts return soon. So as a short term call this might make sense. But that run will be the time to short the big four. They may not hold European sovereign debt but they do hold some of the most overvalued collateral in the world and it is fully exposed to a pure commodities economy that is only part way through an accelerating super cycle bust.
If you want to buy banks I humbly suggest waiting for that first. I suspect these rights issues discounts will seem rather paltry all too soon.
