What is Going on with the Big Banks Share Price?

What happened to the big banks?

For over a year, shares in our big four banks have been trending down. Go back even further, and their share prices have barely moved in a decade.

In May 2017, Australia’s largest bank (and biggest stock), Commonwealth Bank of Australia [ASX:CBA], got within a whisker of $88. Fast forward to June 2018, CBA’s share price traded below $68 — a fall of around 23%.

It’s not just CBA feeling the pinch, though. Other banks have also been on the skids. Westpac Banking Corporation [ASX:WBC], Australia and New Zealand Banking Group Limited [ASX:ANZ] and National Australia Bank Limited [ASX:NAB] are all down a similar amount over the same time.

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What caused the selloff?

Uncertainty caused by the prospect of a Royal Commission kept a lid on bank share prices for most of last year.

By the time the Prime Minister announced the Royal Commission in November 2017, even the banks had given up fighting against it. Best for them, they believed, to get the whole lot over and done with.

The commission has uncovered many unsavoury practices. Like clients being charged fees for services they didn’t use or need. Worse than this, fees charged to dead people.

Apart from those findings, there have also been a number of other high profile scandals. Including CBA settling a $700 million fine with AUSTRAC over breaches of anti-money laundering and counter-terrorism laws.

Adding to their woes, interest rates in the US are rising, making the banks’ funding costs more expensive. Throw in a cooling property market, and it’s little wonder the banks’ share prices have been on the nose.

What will happen next?

With so much bad news priced into their share price, investors are now wondering if the bank selloff has gone too far. Over the last couple of weeks, bank share prices have bounced off their lows, with CBA up over 10%.

While their prospects for growth might not be what they have been in the past, bank arrears numbers and loans in default have yet to make a dent in banks’ profits. Investors, for the time being at least, are seeing the banks as the glass half-full.

What investors need to decide though, is if this recent bounce is a real turn around. Or just a brief reprieve from the overall trend down.

We’ll get a chance to see how CBA is performing when it releases its full-year results, and goes ex-dividend, in August. And with Westpac, NAB and ANZ all due to release their results later in the year, patient investors can see how the other banks are tracking before deciding to invest their funds.

Matt Hibbard,
For Money Morning

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Money Morning Australia