A Banking Royal Commission could see the share price of our big lenders plummet
ANALYSIS: Today’s announcement of a banking Royal Commission has already been felt by our biggest lenders — and experts say the impact is likely to increase.
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THE announcement of a Royal Commission into Australia’s banking sector has immediately hit the share price of our biggest lenders and experts have warned that could just be the beginning.
Share prices of Australia’s big four banks immediately slumped between 1.5 per cent and 2.5 per cent today in response to Prime Minister Malcolm Turnbull’s announcement of a Royal Commission, with Commonwealth Banks shares hit hardest.
In a major backflip this morning, Mr Turnbull announced the $75 million inquiry saying speculation about the commission was moving into “dangerous territory” that was putting the banking sector and the Australian economy at risk.
The move came after the chief executives of the Commonwealth, Westpac, National Australia and ANZ banks requested the government step in and launch a “properly constituted inquiry” in an email sent to Treasurer Scott Morrison yesterday.
The letter fell short of calling for a Royal Commission.
Ben LeBrun, a market analyst with Charles Schwab Australia and a commentator with Sky News, said speculation over a Royal Commission had already impacted adversely upon the share price of Australia’s big banks.
“There has previously been a discount on those shares because of all the talk of a Royal Commission,” he told News Corp Australia.
“The market doesn’t like uncertainty.”
Mr LeBrun estimated that discount at around three per cent.
He said the big four’s shares had fallen 1.5 per cent to 2.5 per cent in response to Mr Turnbull’s announcement and warned prices could plummet further.
“This announcement will plague the banks for a few days, and they could fall by another 2.5 per cent,” he said.
“But because it is a Royal Commission ‘light’, it’s not the type of Royal Commission we would have had if a Labor Government came to power, it might not have as great an impact.
“And the price could also be helped by the broader optimism in the market.”
However the banks could still be on the nose with some.
“With a Royal Commission will come increasing regulation and costs and that chews into the banks’ profits,” Mr LeBrun said.
“That share prices could fall by up to 10 per cent is not beyond the realm of possibility.”
A Royal Commission was a key plank in Labor’s election campaign last year.
And further pressure fell on the banking industry in August in the wake of money laundering allegations levelled at the Commonwealth Bank.
Last month Opposition leader Bill Shorten said: “A Royal Commission is the king of all inquiries.
“It has the power to look behind the corporate veil, to get behind the high-priced lawyers that the banks rely upon. Every time there is a financial scandal in Australia, every time thousands of people get ripped off, we hear from the banks ‘it was just a one-off incident. We’re very sorry. It will never happen again’.
“And the next time you open the pages of Australia’s financial press, yet again we discover another scandal and another problem.
“There it is a pathology in our banking industry. Whilst our banking industry is profitable, I do not believe that the only way the banking industry can be profitable is by ripping off ordinary consumers. Enough is enough.”
The Australian Bankers’ Association launched an advertising campaign last week aimed at influencing public sentiment.
In the TV ad of the campaign titled Australian Banks Belong To You, viewers are told: “Nearly 80 per cent of Australian bank profits go straight back to shareholders. Most of it goes back to Australians who own bank shares through their super funds”.
An ABA spokesman told News Corp Australia: “there is a lot of misinformation out there and this is designed to start a conversation”.
According to the campaign’s website, recent Westpac research showed that 72 per cent of people believe that 25 per cent of bank profits are returned to shareholders.
The $6.2 billion bank levy announced in the May budget was viewed as Prime Minister Malcolm Turnbull targeting the banks as a way of paying for disability insurance and to help balance the books.
The levy was supported by Labor but the banks, who continue to oppose it, say they were sidelined by the move.
In September the banks dumped ATM fees in a move seen as many as a bid to placate those calling for a Royal Commission.
Commonwealth Bank’s share price today sits at around $79.53 down from an April high of $87.66. But it is up from a September low of $73.24 in the wake of the allegations foreign criminal syndicates laundered millions through Australia after the CBA allegedly failed to comply with strict money laws and monitor almost 780,000 accounts.
This time last year their share price sat at $78.65.
NAB’s price sits at around $29.44 today, down from a high of $34.09 in May but up from a June low of $29.06 This time last year it traded at $28.93
ANZ sits at around $28.46, down from a May high of $32.95 but up from a June low of $27.36. This time last year it was at $28.41.
Westpac is currently trading at around $31.27 a share. That is up on a June low of $29.55 but down on a May high of $35.30. This time last year it was at $31.27
Mr LeBrun said the announcement of the bank levy hurt bank shares in May, while the allegations against CBA did not help sentiment in the sector.
Originally published as A Banking Royal Commission could see the share price of our big lenders plummet
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