daily reckoning: oz banks in bad shape, page-2

The ASX Financials index XFJ is down about 58% from all time high. That compares to about 75% for both the FTSE 350 banks and S&P 500 Financials.

I would say we are valuing our banks quite conservatively given:

- we haven't had any bank record losses for even a single quarter (compared to four or more quarters of losses for many banks in the US and UK).

- we haven't yet seen any bank reduce dividends and grossed up divs are currently well into double digits (compared to most banks in the US and UK which have reduced divs to zero)

-unemployment is still low and default rates are still very low by global standards (compared to the US where mortgage defaults are around 7% in Australia is around 0.3%-0.4% last time I looked).

-private investors are still willing to support the banks through capital raisings (as they have all done recently to upgrade Tier 1 capital ratios - this has not been an option for most US and UK banks recently).

-The property sector has gradually cooled rather than collapse.

-Interest rate decreases have been mostly passed directly to the consumer which proactively reduces mortgage stress ( in the US mortgage rates held up at highs despite the Feds aggressive cutting campaign - until recently).

-government has taken proactive steps to support the banks through deposit guarantees etc (this averted any Northern Rock/IndyMac style bank runs which affected confidence in the UK in particular).

So not to say that this situation couldn't change however the market has done a good job of pricing in lower profit expectations and would need evidence of further deterioration to justify any further de-rating imo.

Not that I'll be racing out to buy them until the market says the time is ripe. Just that there's already quite a bit of doom and gloom built into the sector here and get the feeling these guys are just trying to drum up a bit of fear as they are running out of options for shorting in other markets.