Is it time to buy the big four ASX banks? It's a good question considering they are some of the most popular businesses on the ASX.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have all been great businesses to own over the past two decades with the strength of the Australian economy and the housing market.
But these days things are not so rosy. It seems like virtually every month one of them releases an update which outlines hundreds of millions of dollars of customer remediation in relation to issues raised in the royal commission.
Who knows how long the remediation will take to be fully paid or how much it will end up costing the big four ASX banks? It is acting as an anchor on the profits, dividends and share prices of the big banks.
Looking a little further ahead there are plans for class actions against the big banks. It's unlikely to lead to gigantic payouts but it may continue to lead to negative sentiment about the banks until everything is done and dusted.
It seems as though the only top management to lose their roles after the royal commission are the NAB chairman and CEO. The new NAB CEO seems to be trying to limit the potential downside of falling Australian dwelling prices by further limiting who can borrow by introducing a debt to income limit. This could be another factor for Australian house prices going down.
Foolish takeaway
Each of the big banks have big dividend yields and are likely to be writing more loans in the decades in the future than they do today. However, the best way to create good wealth is by finding investments that can compound and re-invest at high rates of return. I do not believe that describes the big banks at the moment.
