Joye: Sell the majors, buy the regionals

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Chris Joye, Co-Chief Investment Officer at Smarter Money Investments, says that the regional banks look more attractive than the majors. “On a relative valuations basis, you want to be short the major bank’s equity, and long regional banks.” The major banks continue to face regulatory headwinds, higher capital requirements and lower returns on equity. “We expect the major banks valuations, on a price-to-book basis to converge around 1-1.5 times. On that basis, we find that CBA and Westpac are still very expensive. Ironically, they’re the banks that are the most exposed to the most commoditised and the most competitively vulnerable market - namely the residential mortgage market.” Conversely, as the regional banks move to internal risk-weighting, they should be able to increase leverage and decrease capital levels, driving higher returns on equity. Watch the full interview below:


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