I don't think the share prices of ASX bank shares are safe yet.
By that I'm referring to the share prices of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
What we've seen today from Adelaide Brighton Ltd. (ASX: ABC) was a decrease in earnings guidance, leading to a 16% decrease in the share price at the time of writing. This was a result of further softening conditions in the residential and civil construction markets, among other construction-related reasons.
The construction sector is an integral part of the economy. It can't be avoided that a decline in activity and/or employment would have knock-on effects to the rest of the economy. Which could lead to higher arrears and lower credit growth for the major banks.
I am certainly not saying that everything is going to go terrible, but it might be silly to assume that an issue at Adelaide Brighton is isolated to that company alone and not other construction businesses and not the banks, which are exposed to the entire economy.
With such huge balance sheets, the banks could see a year's worth of profit wiped out if they face difficulties.
Foolish takeaway
For me, investing in the banks doesn't represent much upside but instead there's a fair amount of downside. I think the odds presented don't point to a high potential for market-beating returns, which is why I think there are plenty of better investment opportunities out there. Opportunity cost is an important factor to consider.
