The Motley Fool

New battle fronts open for AMP Limited and big banks facing more regulation

Thinking of jumping in on the share price weakness of AMP Limited (ASX: AMP) and the big banks? Don’t.

I am as big a bargain hunter as the next Fool, and I do believe there will be a time when it’s time to buy against market sentiment, but this isn’t the time.

A new battle front has just opened up for the wealth management industry and our biggest banks Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB).

This battle front is regulatory changes and that spells bad news for the sector as a whole. Other wealth managers like Perpetual Limited (ASX: PPT) and IOOF Holdings Limited (ASX: IFL) will be sitting on the edge of their seats too.

Those hauled in front of the Banking Royal Commission were already battling the threat of big compensation bills, class action lawsuits, and growing operating headwinds (more so for the banks).

Regulatory risk is perhaps the biggest risk of all as it could actually see the breakup of these organisations – particularly AMP as the big banks have already started divesting businesses.

This new battle front means these stocks face at least one more round of de-ratings and AMP’s dramatic announcement this morning that saw its chief executive Craig Meller fall on his sword and our largest financial planning group undertake an “accelerated change” program will not ease the public’s call for blood.

AMP said its non-executive director Mike Wilkins, a member of its audit and risk committee and who took the chair of the risk committee in May 2017, will take over as interim CEO.

Wait a minute! Wasn’t the audit and risk committee asleep at the wheel when AMP was alleged to have been breaking the law and lying to its customers?

AMP and the big four banks have made fools of us – and not in the good way that this website does! Perhaps Mr Meller shouldn’t be the only one thrown under the bus.

Ignore the fat juicy dividend yields and cheap valuations on offer by this motley crew. Valuations are quite useless in justifying a buy call during such times – particularly since no one knows how these organisations will look in the not-too-distant future and the size of the financial penalties they will likely have to cough up.

What this also means is that analysts will be hesitant right at the moment to make downgrades to their forecasts as more dust needs to settle before they can make this judgement call.

The time to consider buying these beaten down stocks is probably just as analysts make their downgrades as that’s often a time when the de-rating cycle starts to turn.

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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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