Although the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is probably nowhere near its conclusion, it certainly has already had an impact on the public’s perception of the big banks.
CoreData’s recent research on trust revealed that in April 2018, less than half (49.0 per cent) of Australians trust the banks, compared to 60.8 per cent in February 2018.
Interestingly, however, the Royal Commission has not had a lasting impact on the big banks’ performance in the share market. The S&P/ASX 200 Financials Index, which is largely driven by the big banks, actually finished the quarter in the black. While the Index was relatively weak throughout April when the Royal Commission was on and weakened again after the Federal Budget in mid-May, it recovered quite strongly during the last few weeks of June.
Where’s the cause for concern?
Of course there are many factors that affect share market performance. However, if share prices remain strong despite the headwinds presented by the Royal Commission, Finance 101 tells us that profits are likely to remain strong. After all, share prices largely reflect investors’ expectations of the future, based on known information. So do the big banks actually have a real cause for concern here?