Tuesday, November 21, 2006

Banking Sector News

There are two things australians bet their house on and love investing in. This is real estate and banking stocks. Real estate has taken a hit the past few years and it looks like banking stocks may be in for a poor run as well.

Commonwealth Bank of Australia Ltd's (ASX:CBA) Ralph Norris, has given a scary assessment of the Australasian banking sector. In his address to a Financial Services Institute of Australasia meeting on 20 November 2006, Norris suggested that thin margins in New Zealand may become a feature of the industry in coming years and that banking groups need to prepare for a potential erosion in domestic margins to between 170 and 180 basis points over the coming five years. According to Brian Johnson, of JP Morgan, Australian banking stocks are currently relatively expensive. Shares in the CBA, National Australia Bank, Westpac Banking and the ANZ Bank all lost ground on the Australian sharemarket on 20 November.

The problem is that banks are considered safe investments and rightly so because they have enjoyed continued growth and profitability. I have to feel that banks won't stand to lose margins and they will introduce fees elsewhere. I guess we have to wait and see. But historically banks are overpriced and I would just keep an eye on them at this point in time. They need to drop 10-15% before coming back into a bargain price range.

Good Luck Investing.

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