What's the outlook for mortgage rates?
As we have discussed a number of times in the past, the major banks face significant headwinds from increasing capital adequacy requirements over the next few years. This is due to a partial reversal of the significantly lower risk weightings that were applied to major bank mortgages, combined with the need to generally hold more equity capital to reduce the potential risks given their ‘too big to fail’ status in the Australian economy. So far we have seen NAB raise A$5.5 billion of incremental equity, CBA A$5 billion, ANZ A$3 billion and WBC A$2.6 - 2.7 billion (including the sale of part of its stake in BTIM), with more equity raisings or capital retention likely to come in future. The need to hold more equity capital against their loan books means that the future return on capital is likely to be lower, impacting not just earnings per share, but also the value of those earnings and the sustainable dividend payout ratio. READ THE FULL ARTICLE HERE: (VIEW LINK)
Roger Montgomery founded Montgomery Investment Management, www.montinvest.com in 2010. Roger brings more than two decades of investment, financial market experience and knowledge. Roger also authored the best-selling investment book, Value.able.