If you were born after 1975, you probably don't remember the last time Australia had a recession. And if you had invested in the big banks from 1995, you would have made a compound return of between 8 to 16 times your original investment. So with all the good times, how can you tell what the next bottom cycle in the banks would look like?
Using bad debts as a key measure:
1992 - Bad debts $1.9B from $55B in loans, ratio 29 to 1.
2014 - Bad debts $1B from $520B in loans, ratio 520 to 1.
So the ratio is 17 times better in 2014 than 1992.
It is looking like 1992 was the peak ratio for bad debts as that was the last recession, and 2014 the trough for bad debts with record low rates.
So if we get back to a similar peak ratio during the next recession, applying the 29 to 1 ratio in bad debts, would increase it by $17B, with ANZ making a $7B profit, that would be looking at a pre-tax loss of about ($10B) and after tax loss of about ($7B).
APRA and Basel have put together requirements that some analysts think would require an additional capital buffer of around that figure of $7B, which doesn't seem to be coincidence.
If your timeline horizon is more than half a cycle (2-3 years) I'd be waiting, as recent history has shown it's taken 3 years of bad debt increases for ANZ to hit it's peak in bad debts, and 2015 is looking to be year 1.