Worrying Signs for Big Four Bank Stocks, NAB Share Price Sheds Most

By ,

The four pillars of Australia’s financial sector (the Big Four banks) have taken a serious beating, as low interest rates and the coronavirus scare threatens to eat away at their margins. The NAB share price in particular is shedding the most.

Since the beginning of February, National Australia Bank Ltd [ASX:NAB] has watched more than 22% of its share price get wiped out. Australia and New Zealand Banking Group [ASX:ANZ] and Westpac Banking Corporation [ASX:WBC] are not far behind, each recording 21% and 20% drops, respectively. Commonwealth Bank of Australia [ASX:CBA] has fared the best, shedding around 18%.

ASX Bank Stocks in Trouble - NAB Share Price Down - CBA, ANZ

Coronavirus fears and interest rates likely to squeeze bank margins

Yesterday’s free fall, where the S&P/ASX 200 [XJO] shed a massive 7.33% to finish the day at 5,760.6 points, left NAB, Westpac, and ANZ at multiyear lows and close to their GFC-era share price depths.

All the Big Four banks are still trending downwards today, just not in as extreme a fashion as yesterday.

Is this a buying opportunity?

Perhaps not.

It might be best to avoid trying to catch the ‘falling knife’.

The banks have traditionally been a go-to for investors because of their great dividends and relative sturdiness. However, with the Reserve Bank of Australia cutting interest rates to historic lows, it’s likely dividends will come under serious threat. Indeed, with the exception of CBA and ANZ, the other two major banks have cut dividends.

With interest rates going to a new record low of 0.5%, it’s difficult not to think that all big four banks will struggle for profitability over the next few years.

Compounding the issue further and fear of the COVID-19 virus clearly gripping the market, the Morrison government is weighing stimulus to go with the RBA rate cut.

For the banks, there is a very real possibility that the housing market will be adversely affected. Meaning less people buying and in turn less profits from mortgages.

Investment banks JPMorgan and UBS have both cut their earnings outlook across the board for the Big Four.

Though NAB revealed some early signs of profit growth in its first quarterly update back in February, the profitability may be impacted going forward.

Dwindling profit margins and the $1.1 billion customer remediation have meant NAB will put the sale of their MLC wealth business on hold and likely result in higher operating expenses, according to JPMorgan.

The reduced buy-back assumptions for CBA and an increased potential dividend cut for Westpac are also on the cards, says the investment bank.

With the full economic effects of the coronavirus yet to be seen, we’ve come up with ‘The Coronavirus Portfolio’ to help you navigate the financial implications of the crisis. You can download a copy for free here.


Lachlann Tierney,
For Money Morning

About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…

Bubs Announces $68 Million Capital Raise

[ASX:BUB] is rattling the can to raise $68 million to support ‘growth opportunities.’

Is Stock Analysis Worth It? Finding Your Investment Edge

Is stock analysis worth your time? The question boils down to a key academic topic: market efficiency.

Bubs (ASX:BUB) Shares up on US Supply Deal Update

Infant nutrition producer Bubs Australia [ASX:BUB] came out with another supplier update today, signing supply agreements with two more US retailers.

NeuRizer [ASX:NRZ] Shares Soar on $1.5 Billion Binding Offtake

NeuRizer [ASX:NRZ] opened 35% higher on Monday after announcing a binding $1.5 billion offtake agreement with Daelim.

[WATCH] Closing Bell — In the Eye of the Storm

It’s a sea of bad news out there at the moment. Equities have cracked and they are continuing to drift lower.

AVZ Minerals Extends Voluntary Suspension

Lithium developer AVZ Minerals [ASX:AVZ] has extended its voluntary suspension on Friday as it continues to work through regulatory and ownership issues concerning its Manono Lithium Project.