Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 3 August 2016

Absolute Bankers Index (July 2016)

A load of bankers

Some time last year, on a very boring news day I dreamt up the idea of the Absolute Bankers Index.

The basic idea was that if the property market and therefore banks were heading into trouble (as was so often being reported in the media) then this would quickly and surely show up in the market capitalisations of Australia's major banks, insurers, property developers, mortgage insurers, and estate agents. 

13 key financials

I therefore selected a baker's dozen of the key market players and the plan was to track the respective market capitalisation of each through 2016 and beyond.

The index comprises the four major banks, being Commonwealth Bank (CBA), Westpac (WBC), ANZ (ANZ) and the National Australia Bank (NAB), and a number of other significant ASX listed lenders.

I also included three key players from the real estate space: developers Lend Lease (LLC), Mirvac (MGR), and the Dexus Property Group (DXS), which is more aligned with commercial, retail and industrial property interests. 

And while it is a comparatively small beast with a market capitalisation of about $1.5 billion, there is furthermore a place for everyone's favourite shorting vehicle Genworth Mortgage Insurance (GMA), since it allegedly represents such a neat proxy for residential housing market risk. 

The constituents thus include the following 13 companies, which collectively comprise about a third of the total value of the Australian Securities Exchange (ASX).

Absolute Bankers Index

In December 2015, I calculated the total balance of the index as being $482 billion.

Of course, me being me, I promptly forgot about the 'project' when some more interesting news days happened. 

I recalculated the index yesterday up to July 2016, and found that the index was...erm, totally unchanged at $482 billion. 

I think it's quite likely that there will be downward pressure on bank valuations given more stringent capital requirements. 

But overall markets are pricing no more risk than they were seven months ago. 

Genworth special dividend

Genworth (GMA) released its 1H16 results this morning, including the declaration of a special dividend of 12.5 cents (on top of the ordinary dividend of 14.5 cents).

Mortgage delinquency rates remain very low in New South Wales (0.30 per cent) and Victoria (0.37 per cent). but have increased over the past year in Western Australia (0.62 per cent). 

Delinquency rates in Queensland have been somewhat elevated since the 2011 floods.

The share price is up from a 52-week low of $2.12 to $3.10.