An article on Bloomberg headlines “The End of the Great Australian Bank Boom.”
The share prices of the big four banks have already taken a pasting over the past few years.
The Commonwealth Bank of Australia (ASX:CBA) share price peaked around $96 in March 2015. Today, the CBA share price trades around $70, a fall of 29 per cent.
The Westpac Banking Corp (ASX:WBC) share price peaked around $39 in April 2015. Today, the Westpac share price trades around $27.60, a fall of 29 per cent.
The Australia and New Zealand Banking Group (ASX:ANZ) share price peaked around $37 in March 2015. Today, the ANZ share price trades around $26.50, a fall of 28 per cent.
The National Australia Bank Ltd (ASX:NAB) share price peaked around $39 in April 2015. Today, the NAB share price trades around $26.50, a fall of 32 per cent.
But, according to the Bloomberg article, “… the worst may be yet to come” for bank shares.
This mirrors our views, expressed in March in The Australian Financial Review, that in a worst case scenario, bank shares could fall by as much as 40 per cent, with dividends slashed or even suspended.
The Bloomberg article says while the banking royal commission, huge fines and criminal cartel charges are making the headlines, it would be a mistake to see the declines in bank shares purely as a result of this.
The greater risk lurks “on the streets of the country’s sprawling suburbs.”
Rents are static as, after years of undersupply, housing starts have outpaced household formation in each of the last five years.
This comes at a time when, courtesy of a crackdown in lending standards, lending is expanding at the slowest pace in years.
The effects are already showing up as house prices slide in Sydney and Melbourne. Auction rates are heading towards 50 per cent, a level typically considered to herald a downturn.
“The housing phenomenon that’s sustained profits for a generation is sputtering out, and with interest rates on the country’s hefty household debt piles forecast to start rising toward the end of this year, the worst may be yet to come.”