ANZ’s John McFarlane and Bank of Queensland’s David Liddy may be the getting all the plaudits in the banking industry at present, but investors looking to make money from fully priced bank stocks in the coming months should take a second look David Morgan at Westpac and Gail Kelly at St George.

New research indicates Westpac will outshine its arch-rival ANZ in the coming months as the Westpac share price rises to match the average price target set for it by 10 leading stockbroking companies that participated in a survey carried out for Eureka Report by FN Arena.

In a fully priced banking sector, where every tiny detail of banking activity is closely monitored by stock researchers, Westpac is set to rise by almost 10% before it reaches an average price target of $25.07.

Gail Kelly, the managing director at regional powerhouse St George, is the banker set to offer the biggest rewards for investors in second-line bank stocks. With all three rivals — Adelaide Bank, BoQ and Bendigo expected to flatten or decline in the near term, St George is the only regional bank whose price targets are higher than current prices.

As the resources-laden ASX gets increasingly volatile, investors are looking again towards bank stocks to provide stable returns. Well-run, well-regarded and offering fully franked dividends, bank stocks represent the backbone of many share portfolios. But in mid-2006 the biggest challenge to new investors in the banking sector will be avoiding short-term losers. In short, it’s the art of judging which bank chief executive will fail to match market expectations?

The table below shows how investors have yet to be convinced that former airlines boss Ralph Norris will make the grade at Commonwealth Bank, while the former Barclays UK executive John Stewart is also facing a sceptical investing public three years after taking the top job at NAB. Among regional banks, the toughest questions surround the future of Bendigo Bank and its chief executive Rob Hunt.

How investors rate bank chief executives …

Bank CEO Buys Holds Sells Sentiment indicator Average price target Projected return ex-div
NAB John Stewart 3 6 1 0.2 $38.10 5.10%
ANZ John McFarlane 2 8 0 0.2 $28.29 5.40%
Westpac David Morgan 3 7 0 0.3 $25.07 9.40%
Commonwealth Ralph Norris 3 4 3 0.1 $43.74 –4.00%
St George Bank Gail Kelly 3 7 0 0.2 $30.47 2.30%
Bendigo Bank Rob Hunt 1 4 5 –0.3 $12.50 –5.40%
Adelaide Bank Barry Fitzpatrick 2 6 2 0 $12.95 –2.30%
Bank of Queensland David Liddy 2 4 4 –0.1 $14.67 –0.50%

Peter Fray

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Peter Fray
Editor-in-chief of Crikey