Is the bank trade overcrowded

Is the bank trade overcrowded? This morning has seen another major investment bank downgrading a bank - this time it's Westpac and the expected 'dividend bonanza' that has become the custom heading into earnings over the past three years is beginning to slow and is less appealing the higher the share price. I am very aware of the possible increase to interest rates from the RBA over the coming year which could have a double effect. Yield hunters that have seen the banks as a cash cow will see value in debt instruments elsewhere, particularly treasuries. The increase in rates will also impact net interest margins as funding costs increase, which is why NAB and WBC are under the most pressure as their NIMs are already slim; a 25 plus basis point rise will further impact funding costs and put margins in a vice as loan competition ramps up. (VIEW LINK)

Evan Lucas
Market Strategist

Evan joined us from RBS Morgans and has been working in financial markets and the banking sector for over four years. He started his career in Amsterdam with the former ABN AMRO, transferred to The Royal Bank of Scotland and then moved back to...


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