The Big Four Banks

Along with many others I hold all four major banks. From the outside they all appear similar – yes some are bigger or smaller – but I can’t see many differentiators as an investor.

So why would I hold all four instead of picking just one or even two, and simplify things to watch in my portfolio? Surely they perform much of a muchness?

If they banks were people or cars, how would you characterise them?

This might drive (sorry!!) it home for me as a visual person.

Thanks and keep up the good work!

A: Thanks for the question.

You are right – there is very little difference now between the major banks. With ANZ abandoning its Asian foray, and NAB exiting its UK and USA banking, the differences from a strategic point of view are now at the margin. Performance is also similar, although CBA has the best ROE, followed by Westpac. ANZ and NAB are a step awy, the laggards.

Why hold all four ? You don’t need to, but because they have such large individual index weights, holding just one might be taking on too much specific stock risk. Of the S&P/ASX 200, the current index weights are CBA 9.6%, Westpac 7.5%, ANZ 6.0%, NAB 5.6%.-  in aggregate, about 28.5% of the index.

 

I am not visual person, so won’t characterize as cars. However some very brief comments;

 

CBA – best Australian franchise. Best technology. Highest ROE, and trades at a premium to the other banks (ie at a higher PE ratio).

WBC – second best Australian franchise, and second highest ROE. Multiple brand strategy, but technology lets it down.

NAB – strong in business banking, relatively  weak in Retail banking. Has been the laggard of the industry – arguably, represents the best value. May be challenged to maintain dividend.

ANZ – abandoned failed Asian strategy – now undergoing major cost cutting/re-organisation. Capital position improved. Domestic franchise the weakest.

 

Hope this helps,

 

Regards


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