Bank stocks are range bound

Share prices of the big four banks moved up between four and 5.5 per cent over the past week, with Commonwealth Bank leading the way. The banks have regained most of the ground they lost earlier in the month.

But the longer term picture shows that the big banks are range bound. After falling between 10 and 15 per cent from their 2010 highs in mid April to a bottom in mid May, they have hit a peak in mid June, bottomed again in early July and formed another peak in early August.

Analysts are neutral on banks' stocks. The consensus is that while valuations are on the cheap side of fair value, weak credit growth and funds management income, along with the risk of "second phase" asset quality problems, are holding the banks back.

Investors are waiting for a catalyst - out-of-cycle mortgage interest rate increases, a pickup in credit demand or big dividend payouts (or some other capital management initiative) to provide some "positive surprise".

CBA's price leadership in the sector over the past week was at odds with analyst sentiment. In the past month the consensus estimate compiled by Thomson Reuters shows CBA buy recommendations falling from three to one, holds increasing from six to nine and underperforms increasing from two to four.

The reason for this apparent anomaly may be explained in a note that Macquarie Research issued yesterday. It said: "Reflecting the anticipated repricing environment we are above the consensus on CBA.

"The announcement of out-of-cycle mortgage rate increases could extend the emerging trading bounce in Australian banks' stocks off current valuations."

CBA, with its big home loan share, has most to gain from mortgage repricing.

Westpac had the weakest rise over the past week, moving up four per cent.

NAB enjoyed the best improvement in analyst sentiment, with the number of outperform recommendations rising from three to four over the past month.