Commonwealth Bank of Australia (ASX: CBA) has extended its steady decline today, slipping another 1% to $88.02 after having fallen as low as $87.15 earlier in the session, a price not seen since late in January.
Although the bank managed to eke out a small gain on Friday, the shares have now declined more than 5% over the last week and are sitting just 2.7% higher for the year, underperforming the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by 4.9% during that time.
There are numerous reasons why the bank's shares have fallen into reverse, but these three appear to have been the major catalysts:
- Recent comments made by the Reserve Bank governor, Glenn Stevens, and the Australian Prudential Regulation Authority (APRA) chair, Wayne Byrnes, have warned that the banks still need to raise more capital, which could impact their return on equity.
- Shares of each of the Big Four banks have been pushed to unprecedented valuations as investors have sought their generous, fully franked dividends in an otherwise low interest rate environment. However, investors are now doubting whether the RBA will move to cut interest rates even lower tomorrow, if the board decides to keep rates on hold, the dividends (and therefore the stocks) will lose appeal against risk-free assets such as government bonds.
- Today's decline has come as a result of a disappointing half-year report from Commonwealth Bank's biggest rival, Westpac Banking Corp (ASX: WBC). Investors are (justifiably) fearing that the bank's results are a sign of what is to come for Australia's overpriced financial sector.
Those fears may be confirmed when Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) deliver their half-year reports on Tuesday and Thursday, respectively.
Unlike its three major rivals, Commonwealth Bank of Australia has already delivered its half-year report, announcing a $4.62 billion profit in February. However, it will provide an update on its third-quarter operations on Wednesday, which will provide investors with an opportunity to assess the bank's health against that of its rivals.
