What to do about bank shares
Scandals, CEO sackings and share price volatility are par for the course for bank shareholders these days.
As Westpac reels from revelations it broke money laundering laws 23 million times and enabled paedophiles to send cash to child exploitation fiends in the Philippines, its investors are also reeling from a 17 per cent drop in the share price in the past few months.
ANZ and NAB are also down heavily since September - about 10 per cent - while Commonwealth Bank shares have dipped slightly.
This weakness comes as the overall share market reaches record highs, and bank shareholders must be sick and tired. They've watched their investments lose roughly one-third of their value in less than four years and been hit with headline after headline slamming bad bank behaviour.
According to the banks' latest annual reports, more than 2.5 million Aussies hold shares directly in the big four banks, up from about 2.3 million in 2016. Millions more people own bank shares indirectly through their super funds, which spread our money across all major companies.
Since March 2015 Westpac shares are down 38 per cent, ANZ has fallen 32 per cent, NAB has dropped 31 per cent and CBA is down 16 per cent. In contrast, the overall sharemarket is up 20 per cent in that time.
Banks have been a poor investment financially, and they have failed socially too. We've heard tales of them charging dead people for financial advice, money laundering cases, criminal cartel offences involving some staff and others fraudulently putting money into children's bank accounts to secure themselves bonuses.
So what do investors do now?
If you're appalled by the behaviour you can always sell out, although the growing number of overall bank shareholders suggests that their investors are a forgiving lot. Time will tell if
Westpac's child exploitation antics have pushed that forgiveness too far.
Financially, there's still a few reasons to hold onto bank shares - especially if you're looking for income.
For starters, their dividends are still strong despite a few cuts and changes to them in recent months. Westpac is paying a dividend yield of 7 per cent, which rises to 10 per cent once the tax benefits of franking credits are included. CBA is paying 5.3 per cent, NAB 6.3 per cent and ANZ 6.4 per cent - all before franking credits.
Even if the banks drop dividends further, the income returns will still smash bank deposits in an environment where interest rates are likely to stay low for many years.
Analysts see challenges ahead for the banks from intense competition, more regulator crackdowns and a sluggish economy. But they say a huge crash is unlikely, especially with share prices already down.
The threat of mass walkouts by customers isn't too high because Aussies don't like to switch all their accounts, cards and loans.
Three-quarters of people bank with the big four and they haven't fled yet despite the constant barrage of bad behaviour being revealed.
Banks will suffer along with every other stock in any future crash, but they've proven over many years that their financial muscle and steady income payments stack up well against other investments.