Bank shares took their second pounding of the week so far yesterday after Monday’s thumping and its clear investors were quite blinkered in their approach yesterday.
The big four banks saw big falls in their share prices yesterday, especially in the afternoon share price falls again, with ANZ Bank and Westpac down more than 3 percent and NAB and CBA off by more than 4 percent in the early afternoon.
Analysts say there is no single obvious reason for the fall, aside from the ongoing uncertainty over the impact on banks from the coronavirus, and any “unconventional” stimulus from the Reserve Bank.
Commonwealth Bank shares fell 6.6% to $68.50, National Australia Bank lost 6.3% to $19.78, Westpac dropped 5.3% to $19.46, and ANZ was down 5.5% to $19.96.
The financial sector dropped by 5.3% compared to a 3.6% decline in the broader market. It is at the lowest level in seven years.
In fact, you could say investors were blind (willfully or otherwise) to a major message in the Sydney speech from Guy Debelle, the Reserve Bank Deputy Governor in which he looked at the impact on the economy and financial system from the bushfires and in particular the COVID-19 virus.
Dr. Debelle singled out the banks as a sector for special mention, saying in his speech (https://www.rba.gov.au/speeches/2020/sp-dg-2020-03-11.html) which saw its title changed from “Investment” to “The virus and the Australian economy”.
“The Australian banking system is well capitalised and is in a strong liquidity position. The Australian banks had raised a significant amount of wholesale funding before the disruption to markets and deposit inflows are robust.
“They are resilient to a period of market disruption. Spreads on Australian bank bonds have widened, although yields remain at levels that are still very low historically. We have not seen any particular sign of pressure in our daily market operations to date.
“The spread between the bank bill swap rate and the expected policy rate (OIS) has risen in recent days but remains low, nothing at all like what occurred in GFC.”
In other words, the pressures on the banks are nowhere near those in late 2008 and early 2009 in the depths of the GFC when the RBA had to pump tens of billions of dollars into the financial system to keep the banks liquid and solvent and a further $10 billion in cash to allow them to cope with a massive run on the banks by depositors.
On the exchange rate (which is the subject of many breathless reports every day) Dr. Debelle was equally sanguine, saying:
“Exchange rate volatility has been very low for a considerable period of time but has picked up in the past few days. However, it still remains considerably lower than volatility in other financial markets.”
“The Australian dollar has depreciated by 6 percent since the beginning of the year to decade lows against the US dollar and on a trade-weighted basis.
“This will provide a helpful boost to the Australian economy and has occurred despite the prices of the bulk commodities, iron ore, and coal, remaining resilient,“ Dr. Debelle said yesterday.
