It's been a stellar year for the Commonwealth Bank of Australia (ASX: CBA) share price, rallying 22.8% year-to-date and well above its 2008 highs.
But CBA's valuation has come into question, and Leithner & Company managing director Chris Leithner thinks the leading bank "no longer deserves its premium".
In an article featured on Livewire, Leithner quantifies the Big Four banks' returns over key intervals and breaks down why the glory days for the CBA share price might soon be over.
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A history of outperformance
Leithner highlights key intervals over the past three decades and for the most part, it's been the CBA share price running ahead of the others.
1. Before the Global Financial Crisis (GFC), CBA "outperformed" the other banks and the index
2. During the GFC, it fell less than the other banks (except WBC) and the AOAI
3. After the GFC and before the Global Viral Crisis (GVC), it outpaced the others
4. During the GVC, it fell less than the others.
However, in recent times, Leithner flags that the CBA share price hasn't outperformed since March last year.
ANZ's shares have risen more than CBA's; and CBA's rise is little more than NAB's and WBC's.
This, I suspect, might be a preliminary and surface indication of a deeper and long-lasting change: if the 30 years to 2020 suited a relatively aggressive bank like CBA, might the times now favour – at least in relative terms – a more conservative one like NAB?
CBA share price drivers
Leithner believes CBA's aggressive lending has been a key driver of its outperformance.
"CBA has lent particularly aggressively; that is, its liquidity and reserve ratios have consistently lagged the others.
"For this and other reasons, its ROE has exceeded the others – and market participants have valued its equity relatively highly," said Leithner.
Looking ahead
The CBA share price might be at its crossroads as economic growth begins to slow.
Leithner concludes that the Big Four banks "are now low-growth and remain heavily exposed to housing, funding markets and unemployment … Their profits and dividends are a result of significant leverage; they are not annuities comparable to term deposits.
"In this environment, CBA no longer deserves its premium and will therefore lose it; the price of its equity, in other words, will either fall towards the others or the others will rise towards CBA's, or some combination of the two."
