Are the ASX's Big Bank shares a buy?

Shares of banks like Commonwealth Bank of Australia (ASX:CBA) and Westpac Banking Corp (ASX:WBC) have galloped higher over the past 20 years.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have galloped higher over the past 25 years of recession-less Australia.

The same could be said of National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Privatise profit, socialise losses

One of the reasons our banks have made great investments is capitalism. Basically, during the good times — which is most of the time, for our banks — our financial institutions will make huge profits and pay big dividends to their well-to-do shareholders.

At other times (like during the global financial crisis), the banks will cry wolf (read: lobby) and expect the government to come save them. And the government will. After all, if they let the likes of Commbank fail – our entire country would collapse.

For example, during the GFC, the government put a deposit guarantee in place for the major banks. With the guarantee still in place some nine years later the major banks have been able to get more deposits and lend more money – fuelling more profits.

Are they a buy?

Simply being implicitly guaranteed by the government does not mean you will make a good investment by buying bank shares.

As always it's important to determine the value of your investment because if you overpay for a company's shares you increase your chances of losing money.

Banks can be difficult to value. But a simple way to judge any investment is to take a look at the risks and determine if you are willing to accept them.

Right now, the big banks are making big profits.

However, house prices could be entering a period of weakness at a time when the banks face increased regulatory burden and competition. All the while, their funding costs are increasing and the cyclical effects of interest rates and bad debts have helped them grow.

Looking ahead, I doubt the benefits of these external forces can continue as they have.

It's okay to have risks, of course — every investment has risks. But you must pay a price for the shares that is reasonable.

In my opinion, big bank shares are not yet cheap enough to justify their risk-adjusted outlook.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »