Banks and capital levels – are we there yet?

Overall we saw the recent bank reporting season as delivering relatively solid results with bad debts generally contained. It should be remembered that even ANZ, which saw a pick-up in its bad debt charge to 26bps of average gross loans, still has bad debts running comfortably below longer term levels. On capital raisings, we feel the large rights issues or placements in the sector are likely finished for the time being although we do believe underwriting of future dividends will occur. Our view, until recently, has been that the Australian banks were relatively expensive, trading at full valuations. The recent market correction is pulling them back to more average valuation levels, with further falls potentially creating some buying opportunities. However at present only one of the big four banks is trading below its longer term PE average level, that being ANZ, which remains our preferred pick on valuation grounds.