I've long been unimpressed by the banks.

But they certainly hold a special place in investor's hearts, which is understandable given their long history.

Up to around 2013, the major banks had delivered substantial and consistent returns for bank shareholders. They were big, they were safe and they provided both capital gains and fully franked dividends. Really good ones.

Between July 1992 and July 2013, CommBank delieverd an average annual compound return of over 18% when dividends are reinvested. Which is huge, especially for a period that includes the GFC. And this was driven by a solid increase in business earnings -- per share earnings for CBA grew at over 9% per annum over the same period. (CBA is the best performer, which is why i'll focus on it).

But over the past 7 years, it's been a very different story. 

CBA's earnings per share have essentially gone sideways. With the dividiend rising roughly 4% per year due to an increasing payout ratio. It's worth pointing out too that this period includes a lot of the growth in house prices and household debt (a great tailwind for a bank). Share's in CBA are at the same level they were 7 long years ago. In fact, even prior to the pandemic, shares had delieverd only a 1.5% average annual capital gain.

Dividends, of course, have helped a lot. But assuming reinvestmnet of all income, the total average annual shareholder return is roughly 6%. And that's underperformed the broader market.

Today, with the economy in the deepest recession in a long time, and one that looks like it will last longer than originaly feared, and with some serious threats to demand for home lending, we have CBA sitting on a PE of 18x forecast FY20 earnings -- well above their long term average. Based on last year's dividend, shares are on a yield of 5.8% fully franked -- which is great -- but it assumes dividends wont be reduced (which i think is inevitable).

For what are extremely cyclical businesses, the current earnings outlook makes it very hard to see how investors could get decent returns from here. I doubt those with a long term horizon will ultimately lose money, but the returns arent going to be anything to write home about. In the near term, it's hard to see much of a catalyst for earnings growth.

A lot of people tend to say it doesnt matter for them because they perosnally bought shares much lower -- but that is poor thinking in my opinion. Whatever you paid is irrelevant, all you can influence is how your capital grows from here. You have to consider opportunity cost; what's the best configuration of your capital going forward?

It's a hard pass for me.