So much for the $14 billion panic on Tuesday about the bank tax on the Big Five (CBA, NAB, ANZ, Westpac and Macquarie).
By the close yesterday the sell off was over and gains were appearing as investors calmed down and realised the fall on Tuesday because of rumours (later confirmed) of the $6.2 billion tax was not the end of the world.
That’s because the uncertainty is over, the tax is not too onerous and it is quite clear now that the quintet will be able to pay it by stinging customers and investors (the latter as a last resort).
So the ANZ, which has seen a big sell off in the past eight days since releasing its interim, and then Tuesday’s slump, rose yesterday, up 0.8%. The NAB and Westpac ended down 0.7% and the CBA was off 0.3%. Macquarie was off 0.6%.
But that was much better than the 1% or thereabouts fall at the start of trading. For example, the CBA was down1.3%, the NAB 1, Westpac 0.9% and a similar drop of the ANZ.
The easing of the bank bailout by nervy investors spilled over into other financials. Bendigo & Adelaide Bank is up 3.9% (it was up nearly 5% at one stage), and Bank of Queensland was up 3.6% after rising 4%.
Non-bank financials are also doing well: insurers QBE and Suncorp are up 3.6% and 2.8%, respectively, while IAG shares rose 2%.
The banks were quick to criticise the deal and claimed the tax would be aid by less profits, perhaps dividends and perhaps by customers. Treasurer Scott Morrison warned not to pass on the cost to customers, but that was pie in the sky posturing.
According to a Credit Suisse team of analysts led by Jarrod Martin, Westpac and NAB are most vulnerable to a possible dividend cut to help pay the cost of the tax.
The Commonwealth Bank and ANZ are seen as relatively more likely to maintain dividends, particular ANZ as it cut its dividend last year.
Macquarie analysts downgraded NAB to an underperform from their earlier outperform rating, citing a risk to its dividend, and cut CBA to underperform, from neutral.
Melbourne based Australian Foundation Investment Company is one of the larger investors in the Australian banks, holding around $1.9 billion worth of shares in the big four banks CEO, Ross Barker said yesterday the practical outcome of what he describes as a “strange” message the federal government is sending to investors, is that bank dividends will be cut further.
“It will probably result in lower dividends than would otherwise be the case,” Mr Barker told Fairfax Media.
Banks represent about 26% of AFIC’s $7 billion total share portfolio and its tens of thousands of retail shareholders depend on them for consistent dividend flow.
Morgan estimated yesterday the “proposed bank levy would reduce major bank earnings by ~4.5% before any repricing offsets” and would strip about 1.6 percentage points off the Australian stock market’s earnings per share.
And Credit Suisse forecast the levy should mean a 5% earnings hit for these banks.
