The big four banks underperformed the index significantly this week, rising an average 2.2 per cent to the ASX 200's 4.3 per cent. This was due to a big rally in base metals prices lighting a bit of a fire under resources stocks - the other major sector in the Australian market.
Although bank prices rose on average, the spoils were mixed. Commonwealth led the charge with a 5.4 per cent gain, ANZ and Westpac trailed with 2.4 and 1.4 per cent gains respectively and National lagged with a 0.6 per cent fall.
CBA remains the most unfavoured of the big four in the
FNArena broker universe, attracting only one buy rating to three sells.
CBA's surge this week pushes its share price premium to the average target to an uncomfortable 9.2 per cent.
Westpac's premium has reached 7.4 per cent and ANZ's 5.9 per cent, while NAB remains steady on a 4.5 per cent premium.
For the past two weeks those premiums have remained in the four to six per cent range. Brokers made no increases to their price targets this week, as they have done in recent weeks, but nor did any changes of rating occur.
The net rating ratio on the big four remains 10 sells to eight buys.
In FNArena's experience, when bank share prices begin to exceed average price targets, an imminent price pullback is signalled.
In what was a short week, stockbrokers had little to add to their current views on the big four.
Goldman Sachs JB Were pointed out that first quarter individual insolvency data released this week showed an 18 per cent increase from the first quarter 2008. The number of Australian individuals declared insolvent now represents 0.43 per cent of the population.
Were also noted that following the latest Reserve Bank rate cut of 25 basis points, and the banks' reaction to it, the banks are writing mortgage loans at 276 basis points, on average, over the RBA cash rate.
This compares to a December 2007 spread of 182 basis points. This implies a 94 basis points credit spread expansion since the credit crisis hit in earnest.
When the RBA was raising rates to fight inflation in early 2008 the banks were making their own independent increases to loan rates as funding rates increased.
Most of the subsequent cash rate cuts have been passed on fully to mortgage holders, but not the last one.
This buffer will assist the banks, Were notes, when rolling forward funding acquired at cheaper, pre-August 2007 rates.
We recall that the reason the big four did not pass on all of the last RBA cut was due to their claim that funding costs had increased.
A bigger buffer has been achieved at the expense of corporate customers, however, who have seen their borrowing spreads blow out to 200 to 500 basis points more than 2007 rates. These spreads include a greater corporate risk assessment.
BA-Merrill Lynch made note this week that commitments to housing loans increased for a third straight month in February, with net commitments up four per cent in value terms. This is clearly a reflection of government home owner grants rather than a general belief in a recovering property market, as commitments to investment loans fell 2.8 per cent in February after falling 3.8 per cent in January.