CBA back to $45-50 again soon?, page-41

In 2011, CBA, Westpac, NAB and ANZ were all valued higher than Bank of America. Now BofA has a market cap higher than all four combined.… the royal commission, money laundering, fees for no service, housing market downturn, small business loan defaults, household debt at 186% of income - a new record of which Scott Morrison can be proud and………………… dividend cuts has resulted in a halving of capitalisation values. For the foreseeable future paying out >75% earnings to maintain > 5% div yields is a dream.

Subdued economic activity, accelerating unemployment, collapsing rents and falling property values are all eating into the ability to support debt - a debt build up that has compounded under the Liberal government’s neg gearing policy - a policy maintained and supported at a time when all other Western countries have been encouraging households to deleverage.

Loan default provisioning is now the first call on bank cash - in fact the banks are tapping the market, raising T1 capital in the form of perpetuals. Equity shareholders are moving away … with only the CBA valued at a premium to NAV.

Is the halving of capitalisation values the end of this cycle or is this just the end of the beginning….. I suspect the latter. Next leg down Q4/2020 through to Q1/2021 as the size of loan defaults starts to be realised - CBA down 25% from current levels to around $45 / the remaining three to stabilise just below $10… then we’ll see how the balance sheets look