Regal takes short position in expensive CBA
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The news: Hedge fund Regal has taken a short position in shares of Australia’s biggest lender, Commonwealth Bank, citing that it is one of the world’s most expensive valuations, Bloomberg has reported.
The numbers: CBA is the most expensive bank on the MSCI World Bank Index with a forward price-earnings multiple of 22 times. Its earnings per share is currently more than double that of domestic peers Westpac, National Australia Bank and ANZ.
CBA shares were trading 1.3% higher at $127.08 in early trading on Tuesday and have now risen nearly 14% so far this year.
The context: Regal Funds chief investment officer Philip King told Bloomberg he expected CBA earnings per share (EPS) to decline in coming years and that he initiated a short position on the company earlier this year.
He cited rising competition from non-bank lenders and private credit, as well as stringent capital requirements as among the factors. Like bank stocks around the world, Australian financial shares have benefited from higher interest rates.
What they said: “For 20 years the share price was driven by strong EPS growth, but over the last 10 years EPS growth has stalled,” King said.
The source: Bloomberg
