The big four banks delivered investors with fantastic returns in 2013 on the back of low levels of bad debts and low interest rates which paved the way for record profitability. In addition to posting a combined profit of more than $27 billion for the year, they also offered investors generous dividends – both of which saw share prices soar to record or multi-year highs.
However, as investors know, we invest for the future rather than for the past. So far shares in each of the big four banks, with the exception of Commonwealth Bank (ASX: CBA), have retreated slightly since the beginning of the year. Here's a look at what to expect from each for the remainder of 2014.
Westpac (ASX: WBC): After announcing a record annual profit of $7.1 billion last year, the bank's CEO, Gail Kelly, announced that the bank would be willing to reach out for more growth in the new year after having spent 18 months focused on building its store of capital to cement its financial strength. She said: "We are tilting a bit more to growth as we go into the 2014 year, but you can be sure we'll do that with all the discipline we do with the Westpac group."
Reflecting the bank's search for greater growth was its acquisition of Lloyds Banking Group late last year for $1.45 billion. Shares gained 20% over the course of 2013.
Commonwealth Bank: Analysts have raised their forecast for the bank to deliver an annual profit greater than $8 billion for 2014 after having posted a record profit of $7.8 billion in 2013. Forecasts appear to be in the range of between $8.3 billion and $8.4 billion.
While it is recognised as the most expensive bank in the world, having surpassed BHP Billiton (ASX: BHP) as Australia's largest company by market capitalisation, some analysts believe that is justified given its "above peer profit growth and lower risk profile". Nonetheless, after also having gained 20% in 2013, investors shouldn't expect great gains in 2014.
National Australia Bank (ASX: NAB): NAB experienced the largest share gain of any of the major banks in 2013, soaring 36%. As the country's biggest business lender, the bank will hope for a pick-up in demand for business loans, although this has not materialised in recent years. Meanwhile, it will also hope for improved performances from its UK businesses which have acted as a drag on the company for a number of years.
ANZ Banking Group (ASX: ANZ): Shares gained 24% in 2013 on the back of a $6.5 billion annual profit. Over the next year, the bank will continue to focus on growth in Asia as it strengthens its position in one of the world's fastest-growing regions. In fact, by 2017 the bank's CEO, Mike Smith, aims to generate between 25-30% of the group's earnings from outside of Australia and New Zealand.
While the bank's result was of course impressive, some analysts were still sceptical of the performance, questioning whether or not its returns were perhaps lagging behind the other major banks which are more domestically focused.
In 2014, the bank will also need to establish whether or not it wishes to sell its minority holdings in Indonesia, China and Malaysia, given that new global banking rules have made holding onto them less attractive. Smith has acknowledged that he may consider selling out of some of them should the bank be unable to gain full control.
Foolish takeaway
Although it is expected the banks will grow profits in 2014 as interest rates are tipped to fall even lower, I don't think the banks are attractive at today's prices. They rallied strongly in 2013 and are unlikely to deliver market-beating returns in the long run. Investors should consider looking elsewhere.
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