Can NAB (ASX:NAB) shares ever close in on CBA’s market cap?

Will NAB ever rule the ASX banking roost?

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It has long seemed that National Australia Bank Ltd (ASX: NAB) was serving a life sentence as Australia’s fourth-largest ASX bank share. Out of NAB, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ), it was NAB that was usually at the tail end of the famous big four.

So it’s rather startling to find NAB is now the ASX’s number 2 bank, behind CBA of course. 

Yes, NAB’s current market capitalisation stands at $91.8 billion. That’s way ahead of ANZ, which is on a market cap of $76.26 billion as of today’s share pricing. Perhaps even more strange is that the ASX’s oldest bank, Westpac, is now the baby of the big four family, with a market cap of $76.1 billion on today’s pricing. CBA is still way out in front though, with its monstrous $166.17 billion size.

Can NAB overtake CBA as the ASX’s biggest bank?

So now NAB has claimed its silver medal, many shareholders might be wondering if the Red Star can play at the high roller tables as the ASX’s biggest bank one day. In an article published in The Australian last week, NAB CEO Ross McEwan says that NAB’s recent good fortunes can be put down to the work he has overseen at the bank in tidying up its famous business banking division:

[Hiring] 550 more bankers and associates, we have been streamlining systems, tidying up the product, just making it easier for them to get out in the marketplace.

But if NAB ever wants to overtake CBA as the ASX’s largest bank, it will probably have to reverse the premium investors now place on CBA shares compared to the other 3 majors. To illustrate, CBA’s current price-to-earnings (P/E) ratio stands at 20.7. In contrast, NAB still only commands an earnings multiple of 14.9.

McEwan: Consistency is the key

McEwan says the key to unlocking that door is consistency, pointing to “a couple of decades of consistent results” at Commonwealth Bank:

We have had two very clean sets of results over the last year. The market likes consistency…

NAB, if we are open and honest with ourselves, we have not. We have tripped up on regular occasions and my aim is to get this bank very consistent so people buy into the stock and want it in the portfolio because of the consistency of returns. Momentum in the bank again, and I think the market likes it. So let’s see where it goes over the next few years.

Displacing CBA as the ASX’s largest bank is arguably a lofty goal. But NAB shareholders will probably be delighted at the very prospect.

At the current NAB share price of $28.04 (at market close on Monday), this ASX bank has a dividend yield of 4.53%.

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. 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 Westpac Banking Corporation. 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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