Australia's Big Four banks' share prices have fallen sharply in early trade following Commonwealth Bank of Australia's (ASX: CBA) half-year results release this morning. CBA reported a 6% drop in half-year profit to $4.6 billion and 1.7% increase in cash profit to marginally miss estimates in a flat result for the bank.
CBA is the first of the Big Four to report earnings, with Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) all set to report in early May.
Shares in all the major banks are trading 1.5% – 2.4% lower at the time of writing as reality kicks in for bank investors after Tuesday's share price bonanza. Shares in the majors and Australia's largest wealth managers soared after Commissioner Kenneth Hayne's final report turned out to be all bark and no bite as far as any financial ramifications for the major banks.
So where are the banks headed in the medium-term?
As I've written about previously, I believe Tuesday's bank share price hysteria diverged from fundamentals as a "dead cat bounce" and was driven by a significant closing out in short positions by those who expected the banks to go lower, as well as a market correction from the pessimism towards the bank pre-report release date.
The biggest driver for the banks is lending volume, and there's no doubt that hampering the mortgage broking industry will hinder that, with ~60% of all bank mortgages coming through brokers. In my view, the biggest issue facing the banks (and their share prices) is slowing credit growth in Australia, a lack of business enhancement and the chance of higher defaults in the residential real estate market.
Foolish Takeaway
With no real growth drivers in sight, I'd be steering clear of the Big Four for now and waiting for the softer earnings results to be priced back into major bank share prices towards the middle of the year. The Big Four have largely underperformed in the market for quite some time now and I'd consider a high-yield stock such as Alumina Limited (ASX: AWC) as a solid alternative in the short-term.
