Like a shag on a rock

BANKS in Australia, like the rest of the country perhaps, have a certain upside-down quality to them. Their share prices broke free from the gravitational pull that dragged down their international rivals’ during the financial crisis. In recent years they have soared as others have sagged (see chart). Now that big banks in other rich countries are regaining their poise, it is the turn of Australia’s to slide. This topsy-turviness may yet continue given the worsening outlook Down Under.

Serving a buoyant domestic economy with none-too-fierce competition, and unburdened by flailing investment-banking arms, Australia’s big four lenders—Commonwealth Bank, National Australia Bank (NAB), ANZ and Westpac—used to delight shareholders with bumper dividends. But concerns over their balance-sheets and exposure to Australia’s frothy housing market have caused their shares to dip by 10%-16% in the past month. Annual results released in recent weeks lacked the ebullience of past years, with lending margins slipping and costs ticking up.

Investors fear that the exceptional circumstances underpinning the vibrant returns of recent...Continue reading

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