Question: What are your thoughts on Bendigo and Adelaide Bank and Bank of Queensland at current prices? How are they situated with regards to the new capital requirements?
Answer (By Paul Rickard): Bank of Queensland and Bendigo and Adelaide Bank are not impacted by the new capital requirements (i.e., the part that relates to risk weights for residential home loans).
The APRA change only effects the major banks and Macquarie.
That said, they will need to be seen as “unquestionably strong” and over time, they will be under pressure to improve their capital base.
In regards to regional banks versus the major banks – I can’t readily see any great attraction to the regional banks. Three years back, the regional banks were particularly cheap – however, that gap narrowed more than 12 months back. Today, pricing metrics are pretty similar, and strategically, I can’t see the case for investing in the regionals.
The brokers are marginally more positive. On a scale of -1.0 (most negative) to +1.0 (most positive), Bendigo is rated at -0.3 with a consensus target price of $12.36. BOQ is rated at -0.1, with a target price of $13.44 (Source FN Arena)
Question 2: What are your views on the Sydney property market? Do you feel there’s a possibility of the housing market caving in? What are your views on the Gold Coast, Sunshine Coast, and Brisbane property markets?
Answer 2 (By Paul Rickard): The Sydney property market has had a great run. Largely, it is making up for some pretty subdued years immediately post the GFC.
That said, I think it might be due for a bit of a cooling. This doesn’t mean a collapse or caving it – just means that buyers become a little more circumspect and prices ease off.
The inevitable supply, plus banks tightening up on investor home loans, will start to have some impact.
In regard to Queensland, I would probably go for Brisbane over the Gold Coast or Sunshine Coast. There are other experts, such as Margaret Lomas, who know a lot more about these markets than I do. You can watch her show on Sky Business.
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