Trump, deregulation a boon for major banks: analyst

The report by Morningstar analyst David Ellis looks at the Commonwealth Bank and finds that despite challenges, Australia’s largest lender has a strong competitive position that underpins profit growth.

“Following the US presidential election in early November, there has clearly been an increase in economic optimism in the US and the Australian major banks have benefitted from the post-Trump confidence boost,” Mr Ellis said.

“Longer-dated interest rates are up and the December 2016 rate hike from the Federal Reserve signals further increases in 2017,” he said.

“Bond yields are significantly up from their 2016 lows but prices have rallied somewhat in the past few weeks, falling 25 basis points from post-election highs to approximately 2.35 per cent for US 10-year government bonds and down 15 basis points for Australian 10-year government bonds to 2.68 per cent.”

Mr Ellis said the prospect of deregulation in the US and a potential “watering down” of Basel IV capital reforms are potential tailwinds for the Australian banking sector.

The Basel reforms will soon be released in Europe by the Basel Committee.

“Despite the early optimism, uncertainty will likely persist in the near term as it will be months before a clearer picture emerges, particularly around the impact of economic and trade policies addressing both the US and the broader international economy,” Mr Ellis said.

[Related: 2017 will be better than you think: Deloitte]