The Royal Commission: Will It Affect Your Bank Shares?
Will this newly announced Royal Commission into misconduct in the financial services industry impact the value of your bank shares?
We’ve been given many reasons as to why Australia shouldn’t hold a Royal Commission, including that our bank shares, held by most Australians by way of our superfunds, will fall. And let’s not forget the incredible cost and waste of taxpayer funds that come with a Commission.
Evidence indicates that some banks haven’t followed the rules and so they need to be held accountable, but is a Commission what we need? Perhaps you believe, after hearing how banks continue to be caught out and yet they still keep making so-called ‘bloated’ profits, that this Royal Commission is needed to sort them out?
Firstly, let’s keep bank profits in context. While their profits may appear large in dollar terms, actual earnings per share are typically single-digit returns, and in some years earnings are low single digits.
Also, a Royal Commission doesn’t guarantee bank practices will change. Besides, if we need a Royal Commission to make banks operate more honestly there’s something very wrong with the current system of self-regulation. So how do we fix that?
Big banks have paid fines for misconduct in the past and at the time of the announcement the shares typically fall temporarily, only to rise sometime later. As the turmoil around the banking sector has intensified in recent years I believe that much of the negative sentiment has already been priced into bank shares. So while prices may remain soft in the short term, probability indicates that a recovery is likely to follow.
The Federal Government has said that the royal commission will end after 12 months, with a final report due by February 1, 2019.
Visit www.wealthwithin.com.au to find out more.