While the banks may be humiliated and reprimanded, and while their stocks may fall due to a lowering of consumer confidence…all the commission can really do is demand that the banks tell all. The commission can then give recommendations to the federal government. But whether the banks do anything, or even take on these recommendations, is a whole other story.
Westpac’s Chief Financial Officer Peter King thinks Australian banks are not highly profitable.He believes that even though banks are earning huge dollar amounts, this does not mean they are turning over a high profit.
This week saw the launch of the Royal Commission into the banking industry. Anything that affects the banks is likely to affect the entire Australian share market. The Commonwealth Bank is Australia’s largest company by market capitalisation. Combined, the banks make up a third of our share market. A loss of confidence could be catastrophic.
The Dow Jones dropped 1,175 points on Monday — the largest single-day point drop in history —erasing all profits made so far this year. The 4.6% decline is the biggest percentage loss the Dow has suffered since 2011, when we saw a drop of 1,089 points on 24 August.
As long as the big four can comfortably maintain their positions at the heart of Australian finance, it’s unlikely to change. There’s little competition for the big four, outside one another. But that comfortable position may not be as secure as they think.
Calls for an inquiry into misconduct in the banking industry have been coming for some time. If public confidence in the banks is shaken, that could be more damaging than the real potential for misconduct to be brought to light and punished. So, is this the end of the banks’ dominance in Australia? Are our favourite dividend-paying stocks in trouble?
The royal commission is likely to recommend increases in regulation, red tape and bureaucracy as the solution to the problems that arise. They are less likely to look at options like increasing market competition or mandating technological improvements. And funnily enough, that’s perhaps what the big four banks actually want in the current environment.
Bad debts are at historic lows, and it’s proving a big windfall for the big four. But you have to think, if house prices had gotten so high and had the consumer stretched to breaking point, you’d expect bad debts at the big four to be rising, not falling!
You can still profit in a market trending sideways. All you have to do is come up with an investment idea, identify growing trends and only invest in what you understand.
The Commonwealth Bank of Australia has potentially just turned its free ATM withdrawals announcement into a marketing disaster. The new ATM rollout is pretty underwhelming to a lot of people. And just at the time when customers from other banks can now freely use your ATMs for withdrawals.