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Why I won’t be buying shares in the big 4 banks anytime soon

In the latest Ipsos poll, the Labor party comfortably leads the Coalition government by 45% to 55% on a two-party preferred basis, leaving a large gap for the government to make up before election time next year.

I believe that now is a good time to evaluate how your Australian equity portfolio would perform under a new government. There are certain shares I would personally avoid under a Bill Shorten led Labor government, including those within the financial sector.

A year to forget for the Australian financial sector

It has been a tough 12 months for Australian financial sector, following the Government’s $6 billion dollar ‘bank tax’; as well as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which has tarnished the sectors already questionable image and has drawn extensive public scrutiny.

The Royal Commission has brought some shocking revelations, including that AMP Limited (ASX: AMP) charged customers for financial advice they never received, including dead people; and that National Australia Bank Ltd. (ASX: NAB) staff accepted cash bribes to wave through loans that they knew were based on fake documents.

Above all, it revealed the appalling behaviours that have become entrenched within our major financial institutions, including poor risk management practices, sluggish customer remediation and sales driven remuneration packages.

This has caused the ASX200 financials index (excluding REITs) (ASX: XXJ) to fall more than 12% in the last 12 months, as the reputation of the Australian financial sector has arguably reached an all-time low.

How would a Shorten Government impact the financial sector?

The financial sector is by no means in the clear, as it appears a Shorten government would be much tougher on the sector, which is something that could extend its woes into the foreseeable future.

It is worth remembering that the Royal Commission came about largely due to pressure from the Labor Party, who called for one as early as April 2016 – calls the Government initially resisted until September 2017. The opposition is now pressuring the government to extend the Royal Commission to allow more victims to share their stories and examine options for further reforms, citing that only 27 customers had been heard in the Royal Commission despite there being over 9,300 submissions.

Bill Shorten has also recently flagged the idea of increased regulation in the superannuation industry, by giving regulators the power to force bank-owned retail superannuation funds to appoint independent trustees to ensure members’ interests are put ahead of company profits, a move which would directly impact the big 4 banks. The opposition leader is also considering giving APRA the authority to sack the
trustees of underperforming funds.

Foolish Takeaway

Bill Shorten has made it clear that he is no friend of the big banks or big business in general for that matter. Should he become prime minister, it seems likely that further regulations will be imposed on the sector; or at least that the financial sector will be subject to a higher degree of scrutiny. That is why I’m happy to sit on the sidelines, avoiding National Australia Bank, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) for the time being.

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Motley Fool contributor Gregory Burke has no position in any of the 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 Scott Phillips.

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