Golden era tipped to be over for banks

THE banking “super cycle” is over as a weaker national housing market and mounting regulatory pressures crimp the future earnings of the nation’s biggest lenders, a leading investment bank says.

Morgan Stanley has sliced its share price targets for the Big Four by 7 per cent and forecast a drop in the share prices of the Commonwealth Bank, Westpac and National Australia Bank over the next year.

Shares in the major banks all headed lower yesterday — bucking a general rise on the Australian bourse — as the bombshell criminal cartel charges being laid against ANZ, Citigroup and Deutsche Bank reverberated around the financial sector.

Six senior bankers, including ANZ’s group treasurer and the former country heads of Citi and Deutsche — were also charged on Monday and face up to 10 years in jail.

Morgan Stanley said in a report that tighter lending standards and a greater focus on responsible lending would reduce lending by the Big Four from $380 billion last financial year to $350 billion in both the 2019 and 2020 financial years.

Banks would be forced to spend more on regulatory and compliance costs over the next two to three years and face new threats from a growing range of “fintech” — or financial technology — players seeking to grab a slice of their traditional pie, it said.

“The banking ‘super cycle’ has come to an end and incumbent banks now face a difficult transition that features a combination of both operating headwinds and regulatory scrutiny,” the report’s lead author, Richard Wiles, said.

Morgan Stanley expects CBA shares to be at $64 at this time next year. Yesterday, CBA shares closed 1.6 per cent down at $69.23. This time last year it was trading at $78.15.

Morgan Stanley’s 12-month price target for ANZ is $27.60, NAB $25.50 and Westpac $27.50. NAB shares dropped 1.1 per cent to $26.38 yesterday while Westpac gave up 0.9 per cent to $27.53 and ANZ fell 0.5 per cent to $26.52.