A global investment firm is warning that Australia's big banks - which own New Zealand's four largest banks - are overvalued and are in an asset bubble.
Analysts from UBS said Australia's banks were some of the strongest in the world but investors would do well to be wary of them.
"The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure," they said. "However, following the significant leveraging of Australian and New Zealand households over the last 30 years they are now low growth and remain heavily exposed to housing, funding markets and unemployment risk."
The analysts said that on average the banks were trading on price-to-earnings multiples of 14.9 times - equal to the record high they achieved in October 2007 before the global financial crisis hit. They also pointed out that the banks had now done better than Australian resource stocks despite the global crisis.
All four Australian banks were now in the top 11 banks in the world by market capitalisation. Commonwealth Bank of Australia, which owns the ASB, is the sixth-largest, Westpac is seventh, ANZ 10th and National Australia Bank, which owns the BNZ, is 11th.
The analysts warned that bank dividends were based on leverage and could drop.
"As with all asset bubbles, they can go higher and for longer than many expect. All we can say is buyer beware."
By Tamsyn Parker Email Tamsyn