AU Editorial: Banks Were as Safe as Houses
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August 8, 2008
As you know, I am quite happy to take questions and weave the answers into the editorial where appropriate.
James writes: "I’m waiting for the banks to have a rights issue. I wonder if there is an economic cycle that started in 1990 and is starting again now."
James, this is a great question and much beyond the scope of a couple of paragraphs, but let me try. In any case, it is useful to talk about the banks as they are the source of so much misery and conjecture of late.
I have chosen ANZ to look at as it is representative of three of the major banks – except CBA, which was still a government corporation back in the ''80s, and to look at the ''90s technically we need some history.
Let’s look at a chart going back to the ''80s:
Chart 1
click here for more detail
But I also want to look at the chart and how it looked in the ''90s; this is the beauty of ProfitSource as it allows you to step back into history:
Chart 2
click here for more detail
As you can see there was a Wave 4 happening and eventually it did recover, but you can see from the next chart that ANZ moved sideways for almost 15 years:
Chart 3
click here for more detail
I am not implying for one moment that the banks could range trade for the next 15 years but I do expect them to take some time to recover.
James, I cannot say we will see the banks do a rights issue. Frankly, it would have to be so well priced to win the confidence of shareholders… and rights issues have their dangers, too, as they can force price down even further.
One thing I do note about banks is that all of the Big Four have had major first and second line management reshuffles – some unforeseen – and the Instos are just a little wary about the banks'' ability to really inspire at a time when it is most needed.
Enjoy the ride
Tom Scollon
Chief Analyst
Trading Tutors Team
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