As we noted last week, it’s been a rough time for shareholders, with March ending up a shocker in a number of major markets around the world. Donald Trump’s recklessness and chaos, and the uncertainty that creates, has been weighing heavily on investor sentiment, particularly with a trade war looming ever larger.
In Australia, however, investors have had something else to contend with. And by investors, we mean all of us — since everyone with a superannuation account is affected. At the end of the March quarter last Thursday the ASX 200 finished at a level lower than it was at the end of the March quarters in 2017 and 2016. Much of the blame rests with the big four banks, which have seen tens of billions of dollars value evaporate as their shares have slid significantly in the last year: 16% for the CBA; 14.9% for NAB, 16.4% for ANZ and 18.8% for Westpac in the past year. Losses in the March quarter alone have ranged by 3.6% to 10%. The loss of value for the big four for the past year is more than $63 billion — with nearly half, or more than $28 billion disappearing in the March quarter.
All despite some of the best business conditions ever recorded in Australia and a jobs boom.
The vast loss of value is a case of chickens coming home to roost after years of ripping off customers, inappropriate loan practices, rorting key market interest rates and enabling money-laundering. And that was before the royal commission discovered whole new areas of misconduct: apparent fraud in lending for home loans, credit cards and personal loans, lending to criminals, lending to people with no incomes, selling products people couldn’t use. What will we discover when the commission resumes hearings next week?
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The people responsible for this are the bank boards, governments and their regulatory arms. The boards presided over rotten cultures, deliberate gouging, flawed remuneration and incentive practices and a willingness to turn a blind eye to whatever gained market share. But governments and the Australian Securities and Investments Commission allowed it all to happen. ASIC sat on its hands during the worst excesses, and didn’t even warn customers that they were at risk of being preyed on by dodgy financial advisers and predatory lenders. It happened under both sides — remember, Labor only came late to the idea of a royal commission into the banks, although it was Tony Abbott who ripped tens of millions out of the ASIC budget, and who tried to reverse the Future of Financial Advice (FOFA) reforms that imposed greater regulatory requirements on financial planners.
The approach of the banks and of the Abbott and Turnbull governments has been to try to keep the mess hidden for as long as possible, and hope that various measures — the bank super profits tax, the regular parliamentary inquiry appearances, new compensation bodies — would hold off the inevitable. All that did was delay the day of reckoning. Or, as it has turned out so far for bank investors — 365 days of reckoning and plenty more to come.