What The Big Bank Levy Means For You

The banks are screaming blue murder. But it mightn't be that bad…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Unless you've been hiding under a rock — and not paying attention to the falling Commonwealth Bank of Australia (ASX:CBA) share price, among others — you'll know that the federal government is coming for the big five banks with a new bank tax… sorry, 'levy'.

Yes, the bottom lines of CBA, Australia and New Zealand Banking Group (ASX:ANZ), Westpac Banking Corp (ASX:WBC) and National Australia Bank Ltd. (ASX:NAB) are going to be collectively up to $1.5 billion poorer per year, thanks to a new 0.06% levy on liabilities.

But it's not just the Big 4. Macquarie Group Ltd (ASX:MQG) is also being hit by the impost.

On its face, the new tax represents about 5% of the big banks' annual profits. And, in an effort to get bank shareholders to man the barricades, the banks are telling them about the impact in a dividend-cents-per-share manner — hoping to use the pollies' favourite 'hip pocket nerve' to galvanise investors into action.

Of course, that's 'up to' $1.5 billion. And confirmation, post-budget, that this new tax is — wait for it — tax deductible, will probably reduce that take.

Now, the Australian banking sector is famed for its competitiveness and the willingness of Australian customers to change banks, right? So there's no way the banks could all just put up their fees and interest charges to absorb the new tax, right?

Right…

Maybe the sector can't absorb the new levy. But I'd bet it can — at least in part. And the lowering of the smaller banks' credit ratings recently by S&P will have helped redress any competitiveness questions, as those banks' costs will increase accordingly.

Bank bosses have warned that the bank levy may lead to lower dividends. It might. Or it might just be used as a smokescreen for any bank CEO who was already worried that his dividend payout was too high and was already looking to lower the dividend.

But surely they wouldn't do that… would they?

I'm rarely a betting man (usually a losing Melbourne Cup bet is my maximum), but I reckon there's a 90% chance the banks find a way to pass on the levy. And I reckon the chance of a dividend cut is about 25% — but it'll almost certainly have more to do with the banks' underlying business than the levy.

Banks are good for income. But there are better options out there.

Motley Fool contributor Scott Phillips (TMFGilla) has no position in any stocks mentioned. 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.

More on Bank Shares

Bank building with the word bank in gold.
Bank Shares

Why are ASX 200 bank shares REALLY surging in 2024?

Was it due to fundamentals, or purely sentiment?

Read more »

An unhappy man in a suit sits at his desk with his arms crossed staring at his laptop screen as the PointsBet share price falls
Bank Shares

Westpac share price dips despite APRA cutting risk capital add-on

Westpac shares are down, along with other ASX 200 bank stocks, despite good news from APRA.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Bank Shares

I predict this ASX bank stock to be the next in line to pop

I rate this ASX bank share as the best opportunity in the industry.

Read more »

Woman and man calculating a dividend yield.
Opinions

Would I be crazy to buy CBA shares now at over $132?

CBA shares have defied a host of bearish analysts to soar 29% in 12 months. Now what?

Read more »

Good news has these businesspeople cheering for joy, partying in a board room.
Bank Shares

2 uniquely Australian reasons why ASX 200 bank shares are outperforming global peers

Three of the Big Four ASX 200 bank shares hit new price milestones today.

Read more »

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Bank Shares

ANZ shares strike 7-year high, is it too late to buy?

Should investors view ANZ shares as an opportunity?

Read more »

A man thinks very carefully about his money and investments.
Bank Shares

BOQ share price rises amid rumoured takeover interest

Could another major move in the banking sector be on the cards?

Read more »

A woman frowns and crosses her arms.
Bank Shares

40% downside! Broker values CBA shares at $80 — is the fun over?

Valuations remain the top concern among brokers.

Read more »