The Australian’s Money Cafe podcast: Bank stocks are back in fashion

After a long period of underperformance the big four banks are ready to roll on the back of rising interest rates – but which bank?

At $106 the CBA stock price has gained around 4 per cent this year to date against a wider fall of around 2 per cent on the ASX 200. Picture NCA NewsWire / Emma Brasier.

It’s a simple proposition: For every 0.25 per lift in interest rates, the major banks get a 3 per cent lift in profits.

A free kick from higher rates could make a big difference in the months ahead as investors seek the safe harbour of blue chips that can offer strong dividends and market pricing power.

The share prices of our major banks have been drifting for some time. But that might be about to change.

My guest this week on The Australian’s Money Cafe is Remo Greco of Sanlam Private Equity.

Greco says conditions are improving for bank margins, though he remains sceptical about whether the banks can optimise these improving fundamentals. He is certainly doubtful when it comes to Westpac.

But this longtime adviser and commentator reluctantly concedes that Commonwealth Bank and its legion of small shareholders could be hard to beat.

The nation’s biggest bank has been performing strongly of late – even though it is already seen as the most highly priced of the majors.

At $106 the CBA stock price has gained around 4 per cent this year to date against a wider fall of around 2 per cent on the ASX 200.

Meanwhile, among local brokers ANZ is the stock that has the most catching up to do – it has recently had the most “buy” ratings among major banks and is seen as a key potential beneficiary of rising rates.

Importantly investors do not just want strong dividends but dividend growth in an inflationary environment. Brokers expect all of the major banks should see dividend yield growth in the months ahead with the sector indicating a lift of near 5 per cent across the board.

Our question of the week comes from Jim, who asks:

“I hear that as funds become bigger, it becomes hard to ‘move the dial’, e.g. Berkshire Hathaway. With my fund Australian Super, is there a risk they become too large to maintain their previous annual percentage growth rates?”

In response: there is little evidence to suggest the biggest funds – such as Australian Super – suffer in any way from being very large players in our local market: Moreover, the funds are moving ever deeper into unlisted assets that have outperformed over the long term. But the issue yet to be fully tested is how the funds would deal with a liquidity crisis if they had to try and sell unlisted assets in a crisis.

If you have a question you’d like answered on The Australian’s Money Cafe please let us know at