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There are four large dominate banks in Australia, Commonwealth Bank CBA, National Australia Bank NAB, ANZ Banking Group ANZ and Westpac Banking WBC.

After many years of being fully valued and riding on the back of the longest boom period in Australian history all four banks are now finally coming falling to more attractive levels. I’m not buying yet, but am paying closer attention.

Dividend yields are now between 6-7%. While dividends may be cut, the dominant position of these banks ensures that dividends will continue to trend upwards over future years. These banks enjoy a dominate position supported by apathetic customers. Most people can’t be bothered swapping banks despite the attempts of international and regional banks to break their quadopoly. Apparently Westpac is best positioned to survive the credit crunch. Commonwealth Bank and ANZ Bank issued profit warnings in quick succession and the sector is trading significantly below its high. Bad debts are rising and investors recognise that 16 years of banking nirvana has ended. email subscription required.

If you follow Australian banks, you may be more familiar with Macquarie Group, MQC. They are considerably more complex than the other banks and are more of a financial services and investment company with a banking arm. Their share price has fallen over 50% and they now yield 7.2%, though I can’t imagine that being maintained. In general MCQ has a reputation for employing the smartest hardest working people around and financial wizardry. They are too complex for me, but at some point they may get cheap enough to make it a no-brainer. At this point I have no idea what that price is.

Major Australian insurance companies have also fallen hard.

I have posted before how despite warning my friends to tread very carefully in the Australian market over the last year, most of them found investment advisors who were happy to encourage them to invest. Incredibly at least two were also convinced that borrowing to invest was an excellent strategy. This despite an amazing four year run which even blind Freddy knew had to end sometime. Last time I talked to any of these people they were happy to sit for the long term, but weren't investing more now. My feeling is that at some point soon “I can’t stand it anymore” is going to kick in and major companies will be offered at great long term prices.

In general the Australian banks are not yet being hurt by falling property prices, it is the global credit crunch increasing their cost of borrowing that is their problem. With the RBA (Fed equivalent) continuing to raise rates signs of homeowner stress are increasing. Property prices are high.


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