What Matters Today: Are Macquarie & now Citi correct that the banks are a sell?

On Monday, Citi joined Macquarie with a “sell call” on the major banks, which saw the sector reverse early gains to close near their intra-day lows, ANZ even slipped into negative territory. There were two major reasons behind their bearish stance:
• Citi believes the valuations of the banks are stretched considering the potential political “attacks on their profits”, i.e. when the RBA starts cutting, they will be forced to follow suit at the expense of profitability.
• Macquarie said to “sell” the banks in mid-March as the sector posted new highs, again a call on valuation grounds; good timing so far!
The cornerstone of Citi’s argument is valuation, which could be applied to the whole market when the ASX200 is challenging new all-time highs. Overall, it is an understandable view, but we question if it’s a good enough reason to exit the sector, forgoing enticing dividends and potentially incurring capital gains issues after the “Big Four” have run so hard.

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