I'm no fan of the banks, as I'm sure most of you know, but I always find their results material fascinating reading.

There's a lot of coverage out there, but I'll highlight some of the things i think are interesting.

The first thing to note is that CBA remains one of the most expensive banks in the world -- at a price-to-book of 3.1x, it represents more than double what you typically see for a bank.

Even JP Morgan's CEO Jamie Dimon said recently that “Buying back stock as a financial company, greatly in excess of two times tangible book [value] is a mistake. We aren’t going to do it”

P/B ratios tend to be the preferred measure for banks because of the fundamental importance of their balance sheets (well, that's always important, but it's super important for banks). Book value is less volatile than earnings and also gives a good read on lending capacity etc.

But even if you prefer a PE, 23x aint cheap either -- especially for a mature business that just reported a 6% drop in profits, and for which analysts are forecasting little to no growth in the coming years.

Yeah, yeah dividends blah blah blah, but is 3.5% ff (or about 5% grossed up) really that good? I mean, i can pretty much get that (virtually) risk free in CBA's own term deposits! Also, there's no growth in the dividends -- the compound annual growth rate in Divs per share over the last decade has been ~1.5%

Oh, and there's a nice reminder here that dividends can and do get cut from time to time.

I'll just remind you again that of all the loans the CBA makes, 70% are for home loans. 17% are business loans

Which makes it very hard to take Matt's assertion seriously:

Anyway, the maths is such that you only need an ~11% drop in the carrying value of their home loan book to entirely wipe out their equity. That's not likely to happen, which even a bear like me will admit, but it shows you how sensitive they are to the housing market. And you dont need much of a writedown to really take a knife to earnings.

(I will note that impaired and 90-day arrears metrics both moved in the wrong direction, with provisioning coming in 50% higher than the bank itself forecast).

Anyway, I can shake my fist at the sky all day long -- the fact is CBA has done very well in terms of share price in recent years (unlike its peers).

Still, low to no growth, highly sensitive to economic conditions and excessively valued.

Hard pass.

My article on Rask Media:

"Is It Time To Buy ASX Bank Shares?"

Click Here

Australian mortgages represent about 55 per cent of Australian bank loans, 25 per cent of group revenues and about 30 per cent of cash earnings, according to analysis by investment bank Morgan Stanley. 

Major banks are exposed to about $524 billion of investment property loans, which make up about 37 per cent of their Australian mortgage portfolios, according to its analysis. That compares to about 17.5 per cent in the UK and less than 10 per cent in the US.

Westpac Group has the highest exposure, with about 25 per cent of loans held by interest-only paying investors, followed by National Australia Bank, 24 per cent, Commonwealth Bank of Australia, 21 per cent and ANZ, 17 per cent.

AFR article here

The big four banks are all extremely entrenched, competitively advantaged businesses. They will be around for a long, long time.

The pace of growth experienced since the turn of the century has been phenomenal, driven by a surging housing market, benign economic conditions, increasing household income (due also to the increase in dual income families), falling interest rates and vertical expansion (eg into Welath management).

My view is that these drivers will seriously slow in the coming decade. 

It's also worth remembering that banking is typically very cyclical -- something that is easy to forget in Australia given we haventy had a recession in more than a quarter of a century!

Plus, we don't yet know the outcome from the Royal Commission. It could act to limit profitability via a number of regulatory requirements

So for me, I'm only interested at a low enough price. (See my forecast page)