NAB Share Price Down, Trouble Ahead for the Big Four Banks

It’s day one of Melbourne’s stage four restrictions.

Things are pretty quiet around here. All you hear are the sounds of helicopters flying above, and the occasional car passing by.

Victoria makes up 23% of Australia’s GDP, and these new restrictions are another blow for Australia’s economy.

Following the announcement, the banks were mostly in the red today on the ASX.

At time of writing, ANZ Bank Group Ltd [ASX:ANZ] shares are down by 3.65%. Both Westpac Banking Corp [ASX:WBC] and Commonwealth Bank of Australia [ASX:CBA] have seen their shares decrease by 3.10% and 1.99% respectively.

The National Australia Bank Ltd [ASX:NAB] share price has seen the biggest drop with by 3.68%.

What’s dragging banks down?

One factor is confidence.

When confidence is low, consumers will spend less. This is quite a big deal when close to 60% of GDP is made up by consumer spending. The pandemic is freezing economic activity.

Another factor linked to confidence is property. When house prices increase, it creates a sort of wealth effect and people spend more.

Sydney and Melbourne, who together make up about 60% of the property market, saw their property prices drop in July. CoreLogic reported that residential prices in Sydney fell 0.9% and 1.2% for Melbourne during the month.

And it’s very likely that property prices will keep falling.

Much of the growth in property we have seen has come from investors and high immigration.

Now immigration has completely stopped. There are no tourists, no backpackers, no students. We are also seeing some migration from cities to regional areas.

Rental prices are also decreasing and more properties in cities are coming onto the market, which is not good news for investors.

And then there is unemployment. The unemployment rate has jumped to 7.4% in June.

What could happen next?

Continued and extended lockdowns don’t bode well for businesses, and that includes banks. The concern is that Australian banks are very exposed to housing, with residential mortgages making up over 60% of their total loans.

Low interest rates and JobKeeper are providing some relief…but what happens when that support ends? In this scenario, keeping unemployment low is key.

Are our banks safe? The Rum Rebellion’s editor Vern Gowdie tackles that question and more in his free report ‘How do I protect my savings and are banks safe?’.

You can access it here.


Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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