Financial news wires are reporting that the top analysts at investment bank Morgan Stanley are bearish on the Commonwealth Bank of Australia (ASX: CBA) share price.
This afternoon CBA shares are changing hands for $81.01 as dividend seekers continue to support the shares, despite the bank recently estimating that the government's new levy on its liabilities could cost it up to $220 million a year after tax.
The Morgan Stanley analysts also pointed out that the banks' prudential regulator APRA is due to soon release an "information paper" on potential new capital adequacy requirements for Australia's banks.
There's a chance that how banks must record risk weighted assets (loans) on their balance sheets will be revised, which could have the effect of lowering their CET 1 ratios as what risk weight different loans are allocated is adjusted.
In turn this could force a repeat of 2015 when the banks had to raise more equity via dividend cuts, cost savings, or capital raisings.
Under the prudential requirements the riskier a loan the more capital that must be kept in reserve as a proportion of the entire risk weighted loan book, although CBA as the largest home loan lender has generally escaped more lightly than its peers such as Australia & New Zealand Banking Group (ASX: ANZ) so far. This is because home loan lending is about as low risk as it comes being nearly always fully collateralised against the value of the physical property.
Outlook
For the bank bears it's clear that the government's levy and still toughening prudential regulatory environment could put dividends and share prices in Australia under pressure over the next 12-18 months.
In fact Morgan Stanley reportedly has a $70 share price target on CBA shares, with an "underweight" rating.
I would probably avoid Australian bank stocks over the short term, although over the long term the "Big 4" still represent a solid bet for dividend seekers thanks to their market dominance and world-leading profitability.
Outside of Australia bank stocks have been on a tear and may have room to run yet thanks to the end of virtual zero interest rate policy (ZIRP) globally, deregulation in the US, healthier capital markets and a return to growth.
But if you're looking for the best capital growth shares at home you should read on below….
