Markets: Big banks dwarf a little levy

Yesterday’s fall in bank stocks was modest given expectations the government today will announce a levy on deposits. Shares in ANZ Banking Group fell by 1.2 per cent, Commonwealth Bank of Australia declined 1.5 per cent, National Australia Bank dropped 1.6 per cent and Westpac slipped just 0.1 per cent.

A levy is unlikely to damage the big four’s dominance of the market, or even their margins. There are reports today the banks may cut their deposit rates to counter any of the effects of the government levy, thus maintaining their margins. Perhaps that’s why NAB chief executive Cameron Clyne, when confronted by reporters yesterday, took the news of the levy in stride – even suggesting it had merit.

If a levy is imposed, the implicit government guarantee that underpins the business models of the four banks will be formalised, and a government bailout of the banks will be obligatory.

That’s good news for the banks, whose shares are likely to add to their gains that began in earnest in June. Shares in NAB have increased 9.6 per cent since June 12, while Westpac’s stock is up 12 per cent since the same date. Commonwealth Bank shares have risen 12 per cent since June 7 and ANZ Bank has added 11 per cent since June 12.

Fund managers perceive – amid expectations of a lousy upcoming 2013 earnings season, notably for those in mining, mining services and many industrial stocks – that bank stocks offer their best bet in terms of relative share price stability and certainly dividends. Bank payout ratios will probably average 80 per cent for the foreseeable future. Yesterday’s fall in bank stocks may have been a buying opportunity.