DEUTSCHE: Even after $16 billion was wiped from their value, Australia's major banks are still expensive

(Photo by Ralph Notaro/GC Images)

Australia’s major banks, the biggest losers in the budget, had a horror week losing $16 billion in market value. Despite the fall, they are still expensive.

An analysis by Deutsche Bank shows the four lenders– ANZ, CBA, NAB and Westpac– are still overshooting their historical average forward price to earnings ratio while dividend yields are falling.

The banks came were already under pressure after their interim results showed net interest margins continuing to decline and signs of revenue pressure came to the fore when Federal Treasurer Scott Morrison slapped them with a levy that would take away $6.2 billion or as much as 6% of their earnings from the four lenders and Macquarie over four years.

That sent their shares reeling last week. The four banks were up between 0.3 to 0.8%, a short while ago. The benchmark S&P/ASX200 index was little changed.

The lenders are trading 5% above their 5 year historical average 12-month forward earnings and double the 10-year average, Deutsche Bank analysts Andrew Triggs and Anthony Hoo said in an investor note.

The banks are however trading 12% below their 5-year average PE relative to the all Industrials ex-Banks index, they said.

These charts show the PE ratio

Dividend yields, one of the main reasons why investors lap them up, are also slipping. And the bank levy may force them to cut dividends.

The average 12-month forward dividend yield for the majors is 5.7%, below the 5-year avg of 6.%.

On a relative basis the sector still looks attractive against most other interest-rate sensitive sectors, and the yield gap vs 90-day bank bills and 10-year bonds are both slightly above the 5-year average, Deutsche Bank said.

Finally,the major banks are now more expensive than Asian and UK banks on a 12 months forward PE basis as this chart shows.

Deutsche, however, cautioned international comparisons are difficult to make due to differences in tax rates, and varying exposures to conduct risk and riskier investment banking activities

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