NAB/Banks

NAB, one of the big four, out with earnings today.

The below CEO commentary does a good job of upending the banking sector investment case (recall the banks put on an unexpected +20/+25% run over the past few quarters).

Competition more than offseting the impact of higher rates (which ordinarily bodes well for NIM expansion).

We own a good chunk of the banks, via ANZ and WBC, but are still underweight the sector, largely for those exact reasons (plus worries that the bad debt cycle will eat into future earnings as they normalise from currently very low levels).

The key graph that (most of us) care about; arrears are indeed climbing, people falling behind on the mortgage, not a surprise given the doubling in rates. But since home prices have held up, you can always sell your way out of trouble, so not really a problem yet.

In sum, not a particularly cheap PE, with unsustainably low BDD’s, which will rise, and doing a buyback at time in which the share price has been very strong (which is less than ideal than having pulled the buyback trigger much earlier).

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