There is no shortage of commentary predicting the end of the spectacular bull run in the share prices of the big 4 banks. And along with that is the tendency by analysts to treat the big 4 as a single company, rather than four separate and unique businesses.
There is an argument in the marketplace that bank shares are "expensive". This may be true compared to historical measures, but the fact is that interest rates are at never before seen lows. When Australian investors can get better returns from the yield on bank shares than term deposits with those same banks, it's clear why share prices are on an unprecedented growth trajectory.
Each of Australia's so called "four pillars" has a compelling reason to buy it that sets it apart from its competitors.
Australia and New Zealand Banking Group (ASX: ANZ)
ANZ is the best placed bank to expand beyond Australian shores. This is especially attractive because of the bank's goal of becoming a "super-regional bank".
The focus of this super-regional strategy is to become a hub for customers in the Asia Pacific region. The short-term goal is to source 25%-30% of total earnings from offshore by 2017.
This exposure to dynamic and fast growing Asian economies is what sets ANZ apart from its peers, especially in the face of limited growth options in Australia and New Zealand.
Commonwealth Bank of Australia (ASX: CBA)
With banking, big is beautiful. And Commonwealth Bank is the biggest bank in Australia. The big 4 each earn the largest chunk of total profits from the core business of mortgage lending. Commonwealth Bank is the largest mortgage lender in the Australian market.
With 25.2% market share and a hot housing market, Commonwealth Bank shares have rewarded investors. More importantly, the housing boom shows no signs of slowing down as it fuels record profits and dividends for the nation's largest home lender.
National Australia Bank Ltd (ASX: NAB)
Owning a share in NAB is also a bet on the Australian economy. That's because NAB is the biggest lender to Australian business, with 28% market share of that lucrative market.
Tough business conditions and restrained consumer spending in the past few years have made it tough for NAB to reap the benefits of this market position. But when the eventual recovery does happen, it will be well placed to capture the upside in business investment.
Westpac Banking Corp (ASX: WBC)
If we're all honest with ourselves, banking is a boring business. Mortgage and business lending deliver predictable earnings, but are also low growth areas in a small market like Australia.
That's why Westpac's decision to wade into the venture capital market to help power future growth is a bold and exciting move. The company has committed $50 million through its Reinventure Group to identify and fund stakes in disruptive technologies. The goal is to find companies that add to Westpac's bottom line and that also improve the traditional banking experience for its customers.
Foolish takeaway
If you resist the temptation to paint each of the big 4 banks with the same brush, you can find compelling reasons to buy shares in each separate business.
In my opinon, the leverage that ANZ has to what will become the economic engine of the world makes it the best long term growth stock of the four. Closer to home, the size and scale of Commonwealth Bank makes it the best placed to capitalise on the dominant theme of house price appreciation that is currently at work in the Australian market.
