Commonwealth Bank of Australia (CBA.AX) short, mcap=$167619m

CBA.AX short pitch:
– Australian bank with the largest mortgage book and at 2.5x TBV.
– Opportunity to bet on an overheated Australian housing market.
– Over 5% of Australians now rent investment properties for less than their interest payments.
– Housing prices are down nationally around 10% from their April 2022 peak, since the RBA started raising rates.
– During COVID, RBA lent major banks cheap fixed-rate debt for 3 years which allowed the banks to temporarily offer fixed rates at <2%.
– 2/3rds of that debt is due to expire this year and mortgage rates on those loans are expected to re-price from less than 2% to 6%.
– Causing massive stress for households leading to distressed RE sales pressuring prices and banking system.

CBA.AX valuation:
– CBA was the biggest beneficiary of the cheap RBA COVID loans and has the highest mortgage book of the big 4 banks.
– Lots of potential downside at 2.5x TBV if the market breaks.

Exp. gain: Not specified.

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