Yikes! The Australia and New Zealand Banking Group (ASX: ANZ) share price is down 36% in 12 months.
ANZ Bank shareholders look away now!
Of course, no one could have predicted such a swift fall in share price of what was Australia's third-largest bank. It's now the fourth-largest by market capitalisation, having fallen behind National Australia Bank Ltd. (ASX: NAB).
It all started with the Chinese share market jitters last year, then concerns over Asia's massive debt pile emerged. Risks associated with a slowing economy subsequently became a focal point for ANZ. Then, APRA's decision to force Australia's biggest banks – including ANZ Bank – to raise more capital to shore up their balance sheets diluted share ownership for the most part.
As a hypothetical example, if you have a $100 billion company with 100 billion shares, each share is worth $1. But if you 'issue' another 10 billion, the price quickly falls towards 91 cents (especially when we consider the extra capital raised isn't producing a superb return for shareholders).
Most recently, ANZ Bank signalled higher credit charges following the downturn in the resources and energy sectors. Bank shares, like their profits, generally move in cycles.
It's worth noting ANZ Bank's peers won't be immune from this, either. Indeed, if history is anything to go by it'll be a matter of time before the other banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and NAB follow suit.
Foolish takeaway
There's nothing wrong with owning bank shares in your portfolio. However, it's vital to ensure you're not overexposed to the banking and property sectors (remember your house and/or other property investments are likely exposed to both as well). It's also important to diversify your nest egg across borders.
