Australia's Big Four banks' share prices were hammered this week with Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia Ltd (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) all closing out the week 3-5% lower on Friday.
While investors in the banks might be used to these sorts of share price declines following a torrid 2018, this is no ordinary week for Australia's major lenders.
Commissioner Kenneth Hayne on Friday delivered his final report from the Financial Services Royal Commission to the Federal Government and Governor-General, with the public release slated for 4:10 pm (after market close) on Monday afternoon.
What should I expect in the Royal Commission report?
That is the multi-billion-dollar question on everyone's lips. While the banks' reputations have taken a battering throughout the Royal Commission revelations, it's the financial damage that shareholders (amongst many other stakeholders) are most concerned with.
It seems inevitable that the major banks will be required to pay compensation for the actions of their wealth management (which only Westpac has retained throughout the inquiry). But no one knows quite how many zeros will be added to that bill, and looking longer term, what Commissioner Hayne's recommendations could mean for the banking cartel that has ruled the Australian economy for so long.
Should Hayne recommend wholesale changes to mortgage broking, wealth management, life insurance or lending standards, these could significantly impact on the major banks' lending volumes and net interest margins (NIMs).
The threat of criminal charges against banking executives is also looming this week, with the world's largest litigation funder, Burford Capital, setting up in Australia to capture a piece of the class action pie set to be carved up by lawyers over the next decade.
At the same time, there is merit in the relative value argument – that the banks should be a buy at current valuations because negative sentiment (and a significant retail share registry) has pushed current prices below fair value. I'm not as anti-bank as most, and I wouldn't be at all surprised to see share prices rise on Tuesday morning if Hayne's report turns out to be all bark and no bite.
Foolish Takeaway
There is little doubt that the banks have endured a lot over the last 12-18 months. Ahead of the Royal Commission report on Monday afternoon, I would expect further share price volatility as everyone takes a punt on what the implications of Kenneth Hayne's report will be.
I wouldn't be making a move until at least Tuesday, if not the end of the week, but there should be tactical opportunities for those Fools willing to roll the dice.
