Will there be a BIG SELL DOWN on Banks Today?
The Credit Suisse news has the market panicking.
Pre-open bids are not always a reliable indicator on how trading will start, but it is looking like there are some BIG players wanting to get out of the BIG four in a BIG hurry!
How does Goldman Sachs Value Banks?
Today I came across an interesting article by James Mickleboro from the Motley Fool on how Goldman Sachs values banks. As an example it explains how they came up with the valuation for Westpac using a “DCF & P/NTA vs. ROTE” valuation methodology. Read the article here: https://www.fool.com.au/2023/03/15/heres-how-to-value-the-westpac-share-price/
Anyone who holds or trades in banks might be interested to read this, but I feel like it might be wasted on @Strawmanwho seems to like banks even less than real estate agents! :)
To be honest, I’m not a huge fan of banks either. I see banks as stocks you can trade on valuation. I like to buy banks when they are undervalued and sell when they are overvalued. There have been lots of opportunities to do that over the last decade. If you are unlucky with the trades in between, you might snag a few nice dividends to keep you interested!
I could see value is Westpac under $21.00 (yesterday) so I bought some. but I’m not counting on the share price getting to $27.74 (the Goldman Sachs valuation). At $21.00 I am hoping to get a total return of 13% per year by holding them, which is not outstanding. However, I might decide to trade the stock after it goes ex-dividend in June if the market gets excited and pushes the share price higher. So I’m in and out of banks depending on valuation, expected returns, dividend dates, and the market sentiment. I don’t see banks as ‘forever stocks’.
Cheers,
Rick
Thanks for sharing the Ray Dalio “The Economic Cycle” Video @markeewan, That’s a must view in my opinion. Probably the best 30 minutes I’ve invested into education on the global economy.
I think central banks have a few levers to pull now to rebalance the economy (with interest rates higher), including reducing interest rates once again and printing more money. Let’s hope central bankers get the balance right and it turns out to be a “Beautiful” deflation!
07-June-2020: https://www.livewiremarkets.com/wires/buy-hold-sell-5-stocks-to-ride-the-financials-rebound
That was posted on Livewiremarkets.com on Friday (05-June-2020) and they kick off with MQG (Macquarie Bank) and then move on to ASX, MPL, ANZ and finish with SUN. Matt Williams is from Airlie Funds Management, which is owned by Hamish Douglass' MFG (Magellan Financial Group), and Matt says that MQG is a Hold and SUN is a Buy. Catherine Allfrey from WaveStone says that both Macquarie and ANZ are Buys. I'm still avoiding CBA, WBC, ANZ & NAB, and I'm still looking to buy MQG below $90 (which is around 24% below the $118/share level they closed at on Friday).
Hi all, I'm very new here, but have some thoughts that may or may not be correct.
I can't bring myself to go near the big 4 at the moment because there is significant down side risk to profits and some pretty important unknowns regarding government policy response after September and with shares that are at or near fair price. If they were trading at a more competitive discount in the current market they may be more interesting. I don't think the banks are a failure risk for reasons others have stated here.
They are currently deferring around 1 billion dollars of repayments per month. This is expected to end in September at this stage. We don't know yet what will happen then. Will the government put a tail on the assistance or will they want to slow or stop the spending. Treasury data indicates some 400, 000 lost their jobs and 600, 000ish are on job keeper. At this stage they do not know how many businesses that closed during the lock down will not reopen. People were already struggling in some cities prior to the virus with some data indicating 20+% were in mortgage stress last year. In September this year when all of those deferred repayments and interest will be added to borrowers (residential and business) accounts what will happen? In some cases this will cause an issue with their loan to equity ratio that is not acceptable to the banks. How will that be dealt with? People won't just start making money again come September. It will take some time. At best payments to banks will be delayed further or reduced until people recover putting downward pressure on profits. At worst more debt than usual will need to be written down.
Most people will do what ever they can do to keep their home. What are the first things you stop paying when you are tight for money? Discretionary items such as boats, recreational vehicles and in some of the sadder cases phone bills, electricity bills, internet bills, credit card and consumer creditors like those associated with Harvey Norman etc. These are the things debt recovery companies specialise in and why they look interesting to me in this sector.
The opportunity cost of investing in banks at this time when that money could be in sectors with a more positive outlook should be considered.