More pain for bank shareholders

Another two banks warn about lower earnings

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bank shareholders should be prepared for lower earnings and dividends – and that comes straight from the head of one of Australia's regional banks.

Another two banks have recently warned about lower growth – this time it was the turn of Commonwealth Bank of Australia (ASX: CBA) and Bendigo and Adelaide Bank (ASX: BEN).

At today's Commonwealth Bank AGM, chairman, David Turner advised that the local economic climate remains uncertain and he expects credit growth to remain subdued (read: low), and that it was difficult to see a catalyst to alleviate the uncertainty affecting consumer and corporate confidence.

That follows Bendigo boss Mike Hurst's comments on Monday that the economic outlook was gloomy and demand for loans low, which in turn makes it difficult to grow revenue whilst maintaining profitability. He added that new regulatory changes required higher capital to held by banks, driving increased costs of deposits. Combined with the low interest rates, he said that banks will experience lower returns than those in the years prior to the GFC.

Related: Banks expect more defaults

That follows Bank of Queensland (ASX: BOQ) and National Australia Bank (ASX: NAB) flagging similar issues and profit downgrades, because of higher provisions for bad debts. Mr Hurst said that those downgrades showed how difficult conditions were for the industry. He warned investors to expect lower returns from banks in future, and if history is any guide, he expects the current financial crisis to last at least another five years and perhaps longer.

The Foolish bottom line

Here at the Motley Fool, we've warned for some time that investors should not rely upon rising earnings and dividends from the banks. We could see falling earnings, dividends slashed, losses instead of profits, and in a worst case scenario, a bailout of a bank by the government, with shareholders losing much of their capital.

If you only invest in one company this year, make it our "Top Stock for 2012-13". Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »