At this share price, is NAB (ASX:NAB) the best big four bank to buy?

Are NAB shares the best to buy out of the big four banks?

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At the current National Australia Bank Ltd (ASX: NAB) share price, could it actually be the best big four bank to buy?

Normally ‘big four’ refers to NAB, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). But these days, in market capitalisation terms, it could be called ‘big five’ with Macquarie Group Ltd (ASX: MQG) included in there as well.

But compared to the other domestic banking giants, is NAB now the best one to own?

Interestingly, in terms of shareholder returns, the NAB share price has actually been the best performer in the last 12 months, rising by 18.8%. CBA shares have risen 18.6%, ANZ shares have gone up 17.6% and Westpac shares have climbed 3.9%.

But what about the future?

For the WAM Leaders Ltd (ASX: WLE) portfolio, the fund managers at Wilson Asset Management prefer NAB to the other options.

WAM said after NAB’s FY21 result:

National Australia Bank continues to be our preferred exposure in the banking sector due to its capable management team, a sector-leading business bank taking market share, further progressed cost management initiatives than peers, and its strong capital position.

NAB share price valuation

The next financial year can have an impact on how much investors and analysts think the business is worth.

Let’s look at the estimates on Commsec, which may be able to provide some clarity on valuations with regards to FY22 earnings.

NAB shares are valued at 14x FY22’s estimated earnings.

After a sizeable decline recently, CBA shares are still valued at 18x FY22’s estimated earnings.

Westpac shares are valued at 11x FY22’s estimated earnings.

ANZ shares are valued at 12x FY22’s estimated earnings.

It’s still a materially cheaper than CBA shares, but now priced a bit more than the other two. Investors such as WAM now appear to be liking the business and giving it a higher quality rating.

Any potential downsides for the bank?

Some brokers like Morgans and Credit Suisse are concerned about the AUSTRAC investigation that’s happening, which is influencing their thoughts on the NAB share price.

Earlier this year, NAB acknowledged that AUSTRAC had identified “serious concerns” with its compliance relating to rules regarding anti-money laundering (AML) and counter-terrorism financing (CTF).

AUSTRAC advised NAB in a letter that it is AUSTRAC’s view that there is “potential serious and ongoing non-compliance” with customer identification procedures, ongoing customer due diligence and compliance to rules.

AUSTRAC’s enforcement team has initiated a formal enforcement investigation. However, it was said that, at that stage, AUSTRAC was not considering civil penalty proceedings and that this decision is “reflective of the work undertaken” by NAB to date.

The brokers that I’ve mentioned, including Morgans and Credit Suisse, rate NAB shares as a hold/neutral. But both of their price targets are mid-single digits higher than where NAB is right now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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