The weekly wrap: banks lag for a change

The big four banks underperformed the index this week (ending Thursday) - the first time that has happened in a month. The ASX 200 fell 1.3 per cent and the big banks on average fell 3.1 per cent.

Commonwealth led the fall with a 5.4 per cent drop but given it had been the star performer on the upside, in defiance of almost all broker recommendations, it was probably time.

ANZ and Westpac fell three to four per cent, while National slipped only slightly.

There were no changes to recommendations emanating from the FNArena broker universe this week, but there were some price target increases.

When NAB announced it had acquired Challenger Financial Group's mortgage management business this week, it was a chance for brokers to both put out reports to comment on the matter and to sneak up their targets. The target increases had nothing to do with the acquisition, they were more to do with last week's CBA result.

The CBA result beat broker expectations and led to somewhat of a re-rating of the stock from the analyst fraternity. Part of that re-rating was in the form of acknowledgement that Australia no longer appeared to be facing a meaningful recession, and thus Australian banks no longer appeared to be facing the extent of bad debt growth that analysts had previously assumed.

But from a valuation perspective, the CBA result confirmed that Australian banks were indeed deserved of higher PE multiples being paid by the market on improved sentiment. Hence NAB's average target rose by 1.8 per cent.

There were some big individual broker target upgrades within that average, which probably explains why NAB shares didn't fall as much as the others this week.

Westpac's average target snuck up 0.8 per cent and ANZ's 0.9 per cent on the back of revaluations from Goldman Sachs JB Were.

With respect to NAB's acquisition of the Challenger business, analysts agreed it had little impact on the bottom line despite being at an attractive price, but it fitted in nicely with NAB's plan to catch up to its bigger rivals in the local mortgage market. Strategically sound but nothing to write home about.

Analysts were ho-hum over Macquarie Group's acquisition of Delaware Investments. The price was okay but the deal provided little impact on valuation. It did provide an opportunity to sneak up Macquarie's average target - by 0.6 per cent.