ASX 200 bank shares are charging higher but the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is still a woeful underperformer.
The ANZ share price jumped 2% to $27.98 during lunch time trade, which is twice the gain of the S&P/ASX 200 Index (Index:^AXJO).
Other bank shares are also performing strongly. The Commonwealth Bank of Australia (ASX: CBA) jumped 4.1%, while the Westpac Banking Corp (ASX: WBC) share price and National Australia Bank Ltd. (ASX: NAB) share price added around 1.5% each.
The ANZ share price is lagging the pack
But before shareholders in ANZ rejoice, the bank is the only big four that's nursing a loss over the past six months.
The ANZ share price is down around 1.5% over the period. In contrast, the CBA share price rallied 21.1%, NAB share price advanced 5.4% and Westpac share price increased 4.5%.
The ANZ share price fell out of favour as it's the only one of the big banks that is losing market share in mortgages.
Can falling market share be offset by better margins?
This is despite strong demand for residential property during the COVID-19 pandemic with banks launching aggressive cash-back campaigns to win mortgage customers.
But ANZ resisted going down that path to arrest its declining share of the market. This should mean the bank will report stronger net interest margins when it hands in its full year results later this month.
If its better margins can offset the expected decline in mortgages, the ANZ share price could play catch-up.
ANZ share price looking overvalued
However, the market isn't yet willing to make this bet. It doesn't help that the bank's valuation isn't seen as a bargain despite its share price underperformance.
Citigroup took a close look at the sector's valuation, and it found the ANZ share price and CBA share price are overvalued.
You can understand why CBA looks expensive due to its strongly rising share price. It's more disturbing to have ANZ classified in the same category.
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The broker used cost of equity (COE) and the more traditional return on equity (ROE) measure as a valuation yardstick.
"We believe that [ANZ's] underlying ROE is expected to fall by ~70bps over FY21 to 9.8%," said the broker.
"However, its share price has also recovered strongly over the past 12 months, up to ~$28 from ~$18. The market appears to be pricing in a significant recovery in underlying ROE."
Citigroup has a "sell" recommendation on the ANZ share price and CBA share price.
The only big bank shares that it thinks is worth buying is the Westpac share price.
