Financial sector sinks as big banks reverse gains
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More news: Australia's major banks pared Thursday's gains on the ASX as the financial sector lost ground.
ANZ (-1.7%), National Australia Bank (-1.6%), Westpac (1.5%) and Commonwealth Bank (-1.2%) were all trading lower by 2:50pm AEDT. Financials fell 1% as the ASX 200 edged down 0.2%
The sector jumped 2.6% on Thursday as CBA (3%), NAB (2.8%), ANZ (2.7%), and Westpac (2.5%) all notched significant gains, spurred by strong earnings results by their US counterparts.
Westpac, CBA best placed among big banks: Citi
The news: Citi said that Westpac and Commonwealth Bank are its preferred picks among Australia's big banks, with retail banking likely better placed than business banking in 2025.
The numbers: Citi analysts noted that Australian banks' 24% outperformance of the broader market last year was "unprecedented", given the lack of fundamental support for the rally.
They said the banks benefitted from a selloff in mining stocks, with the materials index down around 20% for the year and a "lack of better options" for investors.
The context: The analysts believe valuations remain the biggest driver of future returns, with the banks entering 2025 at their most expensive valuation in nearly 20 years. Asset quality continues to deteriorate, costs remain stubborn as reinvestment persists, and a rate cut would be negative for revenue expectations, they said.
Citi reiterated its underweight stance on the banks, with all at a 'sell' rating. Its order of preference on the stocks is Westpac, CBA, National Australia Bank, ANZ, Bank of Queensland, and Bendigo and Adelaide Bank.
The financial sector rose more than 2.5% on Thursday as Macquarie Group (3.2%), CBA (3%), NAB (2.8%), ANZ (2.7%), and Westpac (2.5%) all notched large gains after their US peers posted strong earnings results.
The source: Citi research
