Down 36%: Do Australia and New Zealand Banking Group shares have further to fall?

The share price of Australia and New Zealand Banking Group (ASX: ANZ) is regaining some ground today, snapping a horror run for the bank’s shareholders.

The bank’s share price fell for six consecutive sessions and lost a total of 11.3% in that time, which officially placed the shares in correction territory (defined as a drop of 10% or more). However, the vast majority of the damage was done on the days immediately before and after the long weekend (Thursday and Monday), which saw the shares plunge 8.4% — more than any of the other major banks.

They’ve managed to rebound 1.5% today in what has so far been a great day for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), but remain nearly 36% lower over the last 12 months. Again, that is worse than any of its major competitors, with the 31.8% decline from National Australia Bank Ltd.  (ASX: NAB) being the next in line.

Source: Google Finance

Source: Google Finance

By now, you’re probably aware of the reason behind ANZ’s decline. The bank announced on Thursday that its bad debt charges for the half would likely be at least $100 million worse than forecast in February, putting the total figure somewhere around $900 million in bad debt charges.

For years, the banks have benefited from low bad debt charges, with many investors perhaps forgetting their cyclical nature. The announcement should be taken as a warning for investors across the sector that bad debt charges could rise for all four major banks at some point in the near future, which could act as a drag on their share prices as well.

By no means is that comment intended to scare you. Instead, it’s simply a caution that investors shouldn’t put too much faith in the big bank shares – particularly not at these price levels – and that diversification is absolutely necessary.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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