Will big ASX banks like Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) be broken up?
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
What’s This About Breaking Up The Banks?
There has been a suggestion that major ASX banks like National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). Not by the Liberals or by Labor, but by someone called Joseph Healy according to the Australian Financial Review.
He was formerly a banker at NAB and ANZ, he’s releasing a bank at the end of this month and he believes that the big four ASX banks have “excessive market power, are extracting unreasonable rents from the economy and need to be broken up.”
He thinks Westpac should sell the loan assets acquired through Bank of Melbourne & St George Bank, and Commonwealth Bank should sell Bankwest.
One the reasons he points to is that the banks don’t understand the concept of a social licence to operate with how they did not pass on the full RBA rate cut of 0.25% last week.
Another thing he pointed out was that banks only should be generating a modest return above the cost of capital of 6% to 7%, but their returns on equity (ROE) are actually 12% to 13% – double the cost, “way above what they should be”.
But Wilson Asset Management’s Geoff Wilson said, “A strong banking system is integral to a strong economy. On our numbers if the banks passed on the entire last three interest rate cuts we estimate that the banking sector’s earnings would be $4.5 billion to $6 billion lower.”
Summary
It’s unlikely that the big banks will be broken up any time soon. There’s no demand for it from politicians and it wouldn’t go down well with institutional investors or retirees – we saw what happened with the franking credit debate.
I hope the RBA doesn’t cut interest rates any further and it’s good for shareholders that banks remain quite profitable. Besides, borrowers have plenty of options to choose from that are offering low rates.
But I’d rather own the reliable shares in the free report below over big banks like CBA or ANZ.
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