Big Four Shares are Down

What’s happened to the big four today?

Shares of the big four Australian banks are trading lower today. That is Westpac Banking Corp [ASX:WBC], National Australia Bank [ASX:NAB], ANZ Banking Group [ASX:ANZ] and Commonwealth Bank [ASX:CBA].

Why have they all dropped?

The big four have been hit with the new $6.2 billion levy. The new tax passed through the federal parliament late yesterday, and will affect ANZ, Westpac, National Australia Bank, Commonwealth and Macquarie from July 1. Yet, as the banks have warned, most of the costs of this levy will probably be passed on to consumers.

That´s not all.

In another blow, credit rating agency Moody´s has downgraded 12 Australian banks including the big four. They have been downgraded from Aa2 to Aa3. The reason: increased risks due to high household debt.

As the Sydney Morning Herald reports, Moody´s said in a statement:

In Moody’s view, elevated risks within the household sector heighten the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years.

And, ‘while Moody’s does not anticipate a sharp housing downturn as a core scenario, the tail risk is a consideration in setting the bank ratings.

Moody´s is not the only one worried about the housing market and highly leveraged households. The RBA has announced today it’s also increasing its watch on the property market.

 What now?

The double whammy doesn’t seem to have spooked investors. Big four shares are only trading between 0.87% and 0.64% lower than yesterday. Analysts think the credit downgrade will not affect banks costs, as the new credit rating is in line with other ratings agencies. Yet investors need to decide how the bank levy and the credit downgrade will affect the banks in the long run, especially as more borrowers are falling behind on their mortgages after bank interest rate rises.

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up close many of the economic phenomena that worry Fat Tail Investment Research readers, like hyperinflation, bank bail-ins and governments burdened with so much debt it cannot possibly be repaid.

Every week, she goes through each article, research note and recommendation produced by our experts around the world to give you information on how to build and protect your wealth. Selva packages the week’s best ideas into one easy to read report: Port Phillip Insider Extra.

Money Morning Australia