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Why big bank shares could be a buying opportunity right now

Since the beginning of May, Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have fallen hard.

I think now may be a good time to take stock of what’s going on with the big four this month.

It’s been results season with some decent (Westpac) and some mediocre (ANZ) numbers, and all banks except CBA went ex-dividend, which drove the share prices down. So far nothing unusual. However, the big driver for the banks’ demise this May has been the Federal Budget, which is imposing a new levy of around $1.5 billion per year onto the big banks.

Pretty bad news and we need to be mindful that the fab four could offload the levy onto their shareholders by way of cutting dividends. Alternatively they could pass the levy on to their customers’ mortgages.

Both scenarios would increase churn from the big four to the international banks that operate in Australia, or to the smaller Aussie banks like Bendigo and Adelaide Bank Ltd (ASX: BEN) and the Bank of Queensland Limited (ASX: BOQ). Or customers could even go to specialised mortgage brokers such as Mortgage Choice Limited (ASX: MOC), all of which have been spared the levy.

However, nothing can go down in a straight line forever and as legendary investor Warren Buffet once said: “Be fearful when others are greedy and greedy when others are fearful.”

And indeed, despite all the uncertainty there are some signs that the big bank sell-off was an overreaction.

For example, Westpac’s share price rose recently after it quantified the impact of the levy to its shareholders. Nothing too scary. The levy will cost 8c per share. Westpac stock was down over 400c. We could see some further recovery across the sector over 2017, and right now may be a good time to buy.

Let’s not forget that the big banks will remain core income stocks. Once they have adjusted to the new levy and lowered growth prospects, they may even prove to be less volatile income stocks.

They will most likely continue to pay nice fully franked dividends and with the current low prices, yields look even juicier, with some creeping up over a tax-adjusted 8.5% with the NAB.

Wanna catch ‘em all? A good way of owning all the banks mentioned in this article is via a low-cost exchange traded index fund that tracks the whole banking sector such as the VanEck Vectors Australian Banks ETF (ASX: MVB).

If you're worried about the bank levy, you could try these Top 3 ASX Blue Chips Instead 

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

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Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you’re expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you’ll be sorely disappointed. Not only are their dividends growing at a snail’s pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these “new breed” blue chips couldn’t be greater… especially the very real prospect of significant share price gains, something that’s looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

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Motley Fool contributor Jens Omenzetter owns shares in Australia & New Zealand Bank, National Australia Bank and Mortgage Choice. The Motley Fool Australia owns shares of National Australia Bank Limited. 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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