We haven't owned a share in a bank since we launched the Forager Australian Shares Fund more than six years ago. We won't be adding to them soon, despite the significant selloff over the past year. A few of our concerns have come to the fore. Increased capital requirements are hurting returns on equity and earnings per share (notice how much focus CBA placed on total cash earnings yesterday, ignoring the fact that it took significantly more capital to generate the 4% increase). And their dependence on offshore funding is what's having most impact on share prices in the short-term. But other potential issues lurk below the surface. Most importantly, the Australian banking sector's unprecedented exposure to one asset class - residential property. Successful banking requires diversification of risk, and our banks don't have that. And finally, I worry about UK-style class actions for the banks' financial planning arms. Yes, today's prices compensate for some of these risks. But Aussie banks are still dramatically more expensive than their international peers. For mine, they face many of the same headwinds.
Starting Forager Funds in 2009, Steve has grown the business to over $370m of funds under management. Offering an Australia and Global equity Fund, Steve focuses on long-term value investing of unloved and undervalued companies.