The Big 4 Banks are the bedrock of most investors' portfolios, as well as being core holdings for the vast majority of superannuation funds. And as the most "pure" exposure to an economy that has not had a recession for over two decades with steadily growing share prices and dividend payouts, that is not unjustified.
But that is no reason to ignore the banks that have grown profitably in other areas, and there are compelling reasons to add the two below to your portfolio.
Macquarie Group Ltd (ASX: MQG) made headlines this week for buying the Esanda Dealer Finance business for an eye-popping $8.2 billion. The fact that it has the capital and debt funding options to complete this size of acquisition shows that the business has resources that few could match.
Put simply, businesses that can afford to invest more in the present are better placed to grow their profits in the future. Now compare Macquarie to the Big 4 banks which are being forced to do exactly the opposite, selling assets and diluting shareholders through capital raisings.
In that light, it is clear that Macquarie is the business that is better placed to invest for the future, and it is taking advantage of record low interest rates to raise money and do exactly that.
In addition, the focus of chief executive Nicholas Moore on identifying and integrating more annuity style businesses into the group is a massive win for long-term investors, as it means that earnings and dividends become more stable going forward.
Bank of Queensland Limited (ASX: BOQ) unveiled profit growth this week that the CEOs of the Big 4 Banks could only dream of. Cash profits at the Queensland focussed lender were up 19% in what has been a tough operating environment for our lenders.
Bank of Queensland is also in a great competitive position relative to the Big 4, as they are being forced to raise additional money to offset their huge mortgage lending divisions, which has the effect of reducing margins and returns on equity.
Add to that fact that the negative effects of the mining slowdown in Queensland have largely been factored into the share price, and BOQ looks to be in a great position to grow its share price going forward, as shown by the 7% jump in the share price after the recent results were reported.
The Big 4 Banks are fantastic businesses, but Macquarie and BOQ look better placed to grow their share prices and dividends in the future, and Macquarie in particular is getting very close to a buy level.
