So far in 2015, shares of Australia's major banks like Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) haven't performed nearly as well as shareholders would've liked.
Indeed, both Westpac and NAB have underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by a hefty 5%.
However, the one shining the light for bank shareholders has been Macquarie Group Ltd (ASX: MQG), Australia's largest investment bank.
Up an astounding 38% for the year Macquarie has continued to post stronger profits on the back of bounding global sharemarkets and currency movements.
Is it time to buy these three bank stocks?
Following a rise of 3% in 2014, shares of Westpac have risen just 1.3% since the beginning of January 2015, whilst the broader ASX is up 6%. Indeed, it appears investor enthusiasm for Westpac shares has soured in recent months after the $102 billion retail bank posted a lacklustre set of half-year results.
The outlook for medium-term unemployment, credit growth, and bank competition also places a cloud over Westpac's ability to continue driving record profits. The bank's CEO, Brian Hartzer, said shareholders can expect, "intense competition" in the banking sector and, "uneven" growth across the economy.
Following years of share price underperformance and one-off provisions and costs, NAB has earned the reputation as the most accident-prone of the big banks. However, its recent decision to divest part of its UK business could be the catalyst for a turnaround in the bank's fortunes. These subsidiaries, named Clydesdale Bank and Yorkshire Bank, have been the focal point of many regulatory and media investigations over the past decade.
Whilst NAB's divestment decision will likely prove to be worthwhile, like its peers, there's a strong possibility NAB's earnings will slow in coming years as the local economy enters a rough patch.
Finally, Macquarie Group shares have – unlike their two larger peers – handily outperformed the ASX over the past five years. In addition to its title as Australia's leading investment bank, Macquarie generates 70% of its income from overseas markets and is a specialist in infrastructure financing, leasing and funds management.
Macquarie's push into annuity-style areas of finance bodes well for sustainable returns over the market cycle. However, investors must remember that both retail and investment banking profits – and, therefore, their share price performances – are heavily leveraged to the market cycle.
Buy, Hold or Sell?
Personally, I'm not a buyer of bank stocks at today's prices. Despite shares in each of the big four retail banks falling heavily in 2015, I continue to believe a slowing economy will put a dampener on their ability to continue posting record profits. Unfortunately, neither NAB nor Westpac appears priced for their lower growth profiles.
On the other hand, I wouldn't be surprised to see Macquarie shares continue to climb in 2015. However, given their current price tag, it appears investors have recognised this potential and they do not appear great value for long-term investors.
