The Australia & New Zealand Banking Group (ASX: ANZ) share price is near a 52-week low of $24.68 this morning on rising concerns about the accelerating price of Australian house price falls and their potential impact on the wider economy.
Analysts are now worried that significant house price falls in major cities such as Melbourne and Sydney could lead the way in delivering Australia’s longest housing downturn in history in a result that could have far-reaching adverse consequences for the broader economy.
For example falling house prices tend to equal falling rents as yields on investment properties adjust and this could lead to rising bad debts as over-leveraged investors are unable to cover their expenses.
If a wide recession were to hit Australia for the first time in 27 odd years then job losses could also equal a big rise in bad debts for the banks, as borrowers have no means to pay back loans whether across credit card, business or home loan lending.
The gloomy outlook has also sent shares in Commonwealth Bank of Australia (ASX: CBA) 2.8% lower to $68.70 today, with the National Australia Bank Ltd (ASX: NAB) share price down 2.6% to $23.38 and the Westpac Banking Corp (ASX: WBC) share price down 3.2% to $24.91.
However, it’s not quite nothing but bad news for ANZ Bank shareholders as the Fairfax press is reporting that analysts at JP Morgan reckon the bank may have enough financial firepower to buyback $3.3 billion worth of shares across FY 2019 and FY 2020.
The analysts are basing their assumptions on the belief that ANZ’s capital adequacy buffer would still be sufficiently high to spend excess cash on a significant buyback.
The analysts have also reportedly factored in the potential for ANZ’s sale of its OnePath financial planning group to not go ahead on the back of the severe regulatory problems at IOOF Holdings Limited (ASX: IFL).
Whether the analysts’ forecasts for a buyback prove correct or not it might not make a big difference to ANZ’s share price direction if Australia’s house price falls turn into a house price crash.
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Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia. 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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