The commentary on our major banks always amazes me. I have had many issues over the years with decisions of our banks and performance of overpaid executives, however in spite of all that they have remained as very strong cash producers.
Of course part of that is the 4 pillars policy however that is also one of the things that limits growth potential. The main growth drivers are simply organic growth or competitive market targeting. This also has problems as aggressive pricing can affect performance in that sector while being attacked in another, which is one of the reasons we see pretty similar products and pricing, although always competition to be found.
They have also tried for growth overseas but that usually ends in tears with NAB having a couple of prime examples of that (Homeside anyone
).
All of this is one of the reasons our Banks latched onto the Insurance / Financial planning sectors aggressively as it was another avenue for cash creation. As we know these were the main areas that caused problems for the banks in the RC and they have all now retreated in varying degrees to core banking. No doubt we will see some moves into other areas again as memories fade.
So obviously it goes to say they are mature businesses with limited growth in regard equity investment. Doesn't make them a bad investment for generating a return if you buy when they are not in favour. (Common sense really and belies the constant cries on here about not reaching previous highs as if everyone bought at those highs
)
(The drop in SP's during Covid was a classic with the naysayers still not able to grasp that it made the banks a good buy at the time)
Anyway, I am often not happy with our banks and have no problem with those that won't touch them. I am purely talking about turning a dollar without expecting stellar growth.
Now, if you bear with me, I would also like to make a comment on what happened in the GFC.
The rhetoric is often that our banks were bailed out by billions of taxpayers funds however this is simply not true and ignores the global circumstances of the GFC.
Worth reading the facts on what caused the GFC on the RBA site -
https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.htmlIn essence it was brought on by practises in America which we had little exposure to.
In fact our major banks were in a strong position although our smaller banks did not have the same quality on their books. The result of the problems in the US of course spread worldwide which impacted global liquidity including the shut down of capital markets and this was the main problem facing Australian banks.
There was an article written in the AFR in 2018 where they spoke to members of the RBA in regard to what really went on which gives great insight. I cannot link the article to HC due to copyright however if you google -
afr article how rba helped the banks during gfc it is easily found and worth reading.
Essentially the RBA stepped in very early on to fund the shortfall in liquidity and the reason they could do this was the very strong Mortgage backed securities the banks could offer as collateral. Our smaller banks did it much tougher early on with much lower quality securities. (It is noted that the banks salvation lay in liquidity provided by the RBA rather than anything APRA did or had done.)
As the GFC unfolded governments around the world stepped in to assist the banking sector and the Aus Government at the time followed by guaranteeing deposits to avoid a run on the banks through fear. This guarantee had to be paid for over a certain dollar amount.
The Rudd government then announced that the banks wholesale funding would be guaranteed so they could take advantage of the countries triple A rating and this allowed the banks to go back to the market for capital which of course they did with gusto. It should be mentioned that this guarantee came at a cost depending on what credit rating the bank had and a very pertinent comment in that article was:-
"What's more, no claims were ever made against the Australian government, and the fees charged generated $4.5 billion of revenue."So while it is fair to say that the GFC created problems we did not experience the problems other countries had in what was a global contagion and our major banks remained strong without the Government throwing actual funds at them!
APRA has continued to increase regulation and capital requirements and the balance sheets of our banks are very strong.
This of course does not make for the sexy growth stories on the ASX and doesn't suit all investors obviously, but they remain a significant part of our overall market.
Long term hold usually is fine if you have bought wisely and dividend returns have been good, although in NAB's case I am pleased they are sticking to a much more conservative payout ratio than they used to............
Anyway, none of the above should be taken as advice to buy any bank and I often agree with many in regard to overpaid and underperforming executives. I am just trying to throw some info out there to address some of the constant rhetoric which seems to have become revisionist history no doubt to be poo pooed by some.......................
(20min delay)