Big bank short-sellers now getting long
In my AFR column today I explain how the big banking bear, Perpetual's Anthony Aboud, has closed out his shorts and got aggressively long the major banks (or via Twitter here). The full column also has some cool stuff on the RBA and the budget. Excerpt enclosed:
Enter the diminutive Aboud, who was a sneaky rugby union halfback to this rampaging, barrel-chested hooker in a stellar under-13s team. (The side was undefeated the next year with the addition of TDM’s energetic Hamish Corlett behind the scrum and a staunch Tom Cowan at full-back.)
“I have been negatively positioned in the banks for a long time,” Aboud says. “My main concern has been the net interest margin (NIM) pressure coming from low interest rates and a flattening yield curve, competition from non-banks as open-banking is implemented, and back-to-front book re-pricing.”
While noting that “over the last year NAB, WBC and ANZ have fallen by 42 per cent on average”, Aboud reveals he has now “neutralised and gone long” those three stocks. (He will not be drawn on whether neutralised means short-covering!)
“While the NIM pressures are still present, we feel that this is well reflected in the analysts’ forecasts and the banks’ prices.”
He highlights that with the introduction of a new accounting standard called AASB 9 (or IFRS 9), banks have to provision for future expected losses upfront rather than the historical practice of waiting for defaults and losses to materialise.
“ANZ, WBC and NAB had to make this call in late April and early May when they reported their results,” he says. “Suffice to say that was close to the peak of despair and hence their assumptions about 2021 unemployment and house prices were predictably extremely dire.
“Even more interesting was the fact that all analysts apart from Coolabah’s team thought these banks were being overly optimistic. Yet if unemployment is not as bad as what was thought in April/May – flash to Bill Evans’ recent forecast changes – and house prices actually increase rather than decrease, then there will be provision write-backs in 2021 and beyond."
“If we see better-than-expected economic conditions in 2021 relative to April expectations, this will create a tailwind for earnings, reduce the prospect of risk-weighted asset inflation (as a function of deteriorating credit quality), and increase the chance of a proper fully-franked dividend around the 6 per cent level."
"Throw in medium-term cost-cutting opportunities through digitisation, and those three banks are starting to look like good value.” (We also own these three stocks in one institutional portfolio.)
Read the full column here or via Twitter here.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha Managers” based on his risk-adjusted performance throughout his career across. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia, and founded the award‐winning research/investment group, Rismark. He has regularly advised governments, developing unique policy proposals. Chris graduated with the University Medal (Economics & Finance) from Sydney University. He studied in the PhD program at Cambridge University in 2002/03, leaving to set up his funds business.
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General Disclaimer:
Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, EQT Responsible Entity Services Ltd (ACN 101 103 011), Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Institutional Investments Pty Ltd holds Australian Financial Services Licence No. 482238 and is an authorised representative #001277030 of EQT Responsible Entity Services Ltd that holds Australian Financial Services Licence No. 223271. Equity Trustees Ltd that holds Australian Financial Services Licence No. 240975.
Forward-Looking Disclaimer:
This information may contain some forward-looking statements. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to rely on forward-looking statements.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
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