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How our big banks are being squeezed between Spotify and the Green vote

The successful initial public offer (IPO) of music streaming service Spotify may have nothing to do our big banks but it’s another reminder that the traditional business model of big financial institutions may have passed its used by date.

Spotify by-passed the banks and sold shares directly to the public at the same time that Australian Greens leader Richard Di Natale was pushing for a People’s Bank to take on the local banking sector.

They may be disparate and unconnected events but they all point to a common ongoing trend – the growing distaste for the too-big-to-fail gorillas in the financial sector.

The negative sentiment towards the big four that includes Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) is building and I don’t think it will abate anytime soon.

If the Banking Royal Commission isn’t putting enough pressure on the share prices of the banks, Richard Di Natale’s proposal to have the Reserve Bank of Australia (RBA) offer home loans will certainly herald the biggest shakeup in the sector in recent memory.

The Greens leader wants the RBA to offer owner-occupier loans for up to 60% of the value of the property and charge interest that is a few percentage points above the official cash rate with a minimum rate of 3.5% a year.

The rate will only increase if the cash rate rises above 3% and Di Natale believes the move will introduce real competition to the banking sector.

I can’t remember a time when the big banks have come under such sustained attack and I believe their shares will continue to underperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in 2018 if not beyond.

I can also say the TV ads run by the banking lobby to make us believe commercial banks in this country are really the “People’s bank” makes me roll my eyes every time they come on.

Some are expecting banks to make a rebound this month due to seasonal patterns that is fuelled by their dividend entitlements, but I am not sure if this trend will stick this year.

I am hoping that I am wrong as I will be selling my bank shares into any rally. I don’t think I need any exposure to the sector given that there are other income stocks that I can buy that have a much brighter outlook, such as wealth manager IOOF Holdings Limited (ASX: IFL).

I am not saying the big banks are at risk of disappearing. Far from it. I just think they are set to shrink and the transition could be a painful process for shareholders.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. 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 Scott Phillips.

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