Shares of Commonwealth Bank of Australia (ASX: CBA) have plummeted 4.7% today, hitting a low of just $77.42. That represents a decline of 12.4% over the last fortnight, putting the bank in an official 'technical correction'.
Today's fall can partially be attributed to the fact the bank is now trading ex-dividend. That means that investors who were on the register as at yesterday's close will be entitled to the bank's final 222 cent per share dividend (fully franked), which it announced to the market on Wednesday last week.
However, the fall could also relate to something more concerning.
Indeed, Australia and New Zealand Banking Group's (ASX: ANZ) chief executive Mike Smith stated that the bank is treating hotspots in Sydney's and Melbourne's housing markets "very cautiously".
As quoted by The Sydney Morning Herald, Smith said: "Australia is, however, made up of multiple housing markets. Not all of these are facing the same pressure. However, price rises in some areas of Sydney and of Melbourne are being driven by a severe mismatch in supply and demand, and we are managing these hotspots very cautiously."
According to Fairfax, National Australia Bank Ltd. (ASX: NAB) has also red-flagged 40 postcodes across the country where business and personal loans are at high risk of default – although it did not reveal the specific postcodes.
At the same time, ANZ's impairment expenses (bad debt charges) spiked in the latest sign that the banks' record-breaking run could be drawing to a close.
As a result of Commonwealth Bank's collapse today, the stock is now trading on a fully franked yield of 5.4%, equating to a grossed up yield of 7.7%. Although that will no doubt attract some income-hungry investors, investors also need to understand the risk of further capital losses being realised – especially if the banks are forced to raise even more capital in the near future.
As such, investors would be wise to either remain on the sidelines for now, or at least consider limiting their exposure to the sector.
