Australia's Big Banks On Track For Worst Year Since GFC

Rising dividends and modest but reliable capital gains have proven to be a standard feature for big bank shareholders, thanks largely to an economy that has been recession-less for more than 24 years.

Commonwealth Bank Of Australia (ASX:CBA), Australia's largest bank by market capitalisation and market share, has proven to be the envy of the pack. An average compound annual total shareholder return (TSR) of 13.5% is nothing to sneeze at.

Then there's Westpac Banking Corporation (ASX:WBC), which has grown its share of key markets such as mortgages, household debt and deposits to be CommBank's major competitor. It currently accounts for 25% of housing credit, according to the bank's most recent ASX filing.

ANZ Banking Group (ASX:ANZ) is the next largest, with its shares having achieved a compound annual TSR of 8.7% over the past decade, according to data supplied by Morningstar.

ANZ is unique among the big four, for its willingness to invest and grow in Asia. As part of its 'Super Regional Strategy', from its key foreign markets (Asia Pacific, Europe and Americas) it plans to derive one-third of profits by 2017.

Finally, National Australia Bank (ASX:NAB) has proven to be the ugly duckling of Australia's big four banks having had many concerns surrounding its exposure in the UK and USA. However, with its new CEO, Andrew Thorburn, appearing willing to make the tough calls early on in his tenure the bank finally appears to righting itself after many years of underperformance.

Combined, it's believed the Big Four banks control 84% of Australia's lucrative mortgage market and have the lion's share of many smaller credit markets.

Unfortunately for shareholders, despite a number of promising characteristics such as their big dividend yields, exposure to a hot property market and the government's implicit guarantee, the share prices of Australia's biggest banks are on track to record their worst yearly performance since the GFC.

Source: Yahoo! Finance

On average, the big banks are down 6.62% in 2015, so far. This is ahead of their calendar year falls of 6.51% and 6.57% in 2010 and 2011, respectively. However, in just the six months since February, each bank stock is down between 17% and 20%.

The catalysts behind the selloff are somewhat obvious. Forecasts for lower growth in credit markets, as Australia's economy slows, cyclically low bad debt charges, a rampaging property market and – perhaps most importantly – the regulator's (APRA) decision to change risk weights on investor mortgages and hints of increased capital requirements have each played their part in spooking investors.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

In response to the regulator's actions, the banks recently undertook record-breaking capital raises from shareholders and institutions. With some of the capital raisings are yet to conclude, however, for the foreseeable future, it's plausible that more selling pressure could be on its way. But with Australia's interest rates still at record lows, and the banks offering huge dividend yields, it may be shortly lived.

Time will tell.

Written By: Owen Raszkiewicz