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Why the ‘big four’ banks are falling behind global peers

The big four banks have endured a difficult 2019 earnings season across the board.

The 2018 Financial Services Royal Commission and lower interest rates have squeezed the banks’ earnings so far this year.

An article from Bloomberg is saying that it’s not just perception: the big four banks are slipping on the global rankings.

How was FY19 for the big four banks?

Commonwealth Bank of Australia Ltd (ASX: CBA) started the trend back in August, with cash earnings missing expectations.

Commonwealth Bank’s 8% drop on the prior corresponding period (pcp) in full-year profit to $8.6 billion. The bank’s underlying cash profit also missed expectations at $8.5 billion for FY19.

The Commonwealth Bank share price fell lower on the result, as investors also missed out on a special dividend despite the $4.1 billion Colonial First State Global Asset Management sale during the year.

Australia and New Zealand Banking Group Ltd (ASX: ANZ) was the next in line, as it reported higher remediation costs in FY19.

ANZ’s profits slumped 7% to $5.95 billion, largely due to customer remediation after the Royal Commission. The Aussie bank’s repayments since 2017 have hit $1.6 billion and lowered cash earnings.

The Westpac Banking Corporation Ltd (ASX: WBC) crashed lower on Tuesday as it became the next in line to report earnings.

The Aussie bank announced a $2.5 billion equity raising to support as its cash profit fell 15% to $6.85 billion.

Analysts had questioned whether the big four bank could meet its regulatory capital requirements without fresh equity or a dividend cut.

In the end, Westpac did both: raising the $2.5 billion from institutional investors and slashing its final dividend by 15% to 80 cents per share.

Customer remediation hurts NAB earnings

National Australia Bank Ltd (ASX: NAB) was the last bank to report its earnings yesterday.

The NAB share price climbed higher despite slashing its earnings and dividend in its full-year result.

NAB’s cash earnings slumped 10.6% to $5.1 billion as it cut its dividend by 16% to 83 cents per share with customer remediation again the catalyst.

NAB’s remediation bill hit $1.1 billion in FY19 and the bank will be hoping its wealth management spin-off will boost its regulatory capital higher in FY20.

Foolish takeaway

For now, all eyes will turn to FY20 to see if the big four banks can turn around their earnings next year.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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.