CBA leads big bank slump on fears budget changes will hit home loans

Shares in Australia’s biggest banks have plummeted as analysts warned the budget’s changes to negative gearing and capital gains tax rules would weaken housing credit growth, while the Commonwealth Bank’s shares were weighed down by a poorly received trading update.

Investors wiped close to $30 billon off the Commonwealth Bank’s market value, after its shares plunged 10.4 per cent due to a combination of the budget’s changes and quarterly earnings that were weaker than expected.

The slump in the nation’s second-biggest stock weighed down the rest of the market, with the S&P/ASX 200 finishing the session down 40.3 points, or 0.5 per cent, at 8630.40, its fourth consecutive decline. The Australian dollar traded at US72.42¢ at the time the market closed.

CBA’s biggest rivals also fell, albeit less dramatically, with Westpac losing 2.8 per cent, National Australia Bank falling 1.5 per cent and ANZ Bank losing 1.6 per cent. The drop in bank shares came after analysts warned the budget’s policies on housing investment would weigh on lending growth and dampen sentiment towards housing – the largest source of loans for Australian banks. CBA and Westpac are the biggest mortgage lenders.

Morgan Stanley analyst Richard Wiles said the budget’s changes, which included limiting negative gearing and capital gains discounts to newly built properties, would have a “negative impact on housing market sentiment and the mortgage market”. He said the policies implied softer mortgage growth, which would be a “headwind” to bank profits.

“In our view, favourable tax treatment is one of the reasons why there has been a 30-year housing ‘super-cycle’ in Australia. However, changes to property-related tax concessions could have a profound effect on the long-term demand for investment properties,” Wiles said.

The slump came as the market lost ground for the fourth day in a row, as the Middle East war drags on without resolution in sight and financial stocks slumped with CBA, the nation’s biggest bank, plunging after it reported lower-than-expected quarterly profits.

CBA reported $2.7 billion in third-quarter profits, which was 4 per cent higher than a year earlier, but below market predictions.

Citi analyst Thomas Strong said CBA’s profit was slightly below forecasts, as was its capital (a buffer held by banks for protecting them against financial shocks). CBA had raised its provisions for bad debts, adding $200 million, in response to growing economic risks from rising inflation and the war in the Middle East.

“Coupled with the likely negative sentiment towards housing and credit growth out of the federal budget delivered overnight, we expect the result could be negatively received,” Strong said.

Macquarie analysts said the budget’s changes were likely to result in “slower house price and credit growth, which could weigh on bank earnings and share prices”.

Tech stocks had weighed on the market in early trade as well, but recovered to finish the day mixed. The early slump came after a selloff in high-flying chipmakers drove US stocks lower overnight, with the market also falling alongside bonds after US inflation data showed the impacts of energy disruptions on the world’s largest economy stemming from the war in Iran.

WiseTech Global shares closed down 3.2 per cent, pushing the software maker’s market value below that of Xero, which rose 1.1 per cent and is now Australia’s biggest tech stock. Technology One and data centre operator Next DC rose 1.7 per cent and 1.1 per cent, respectively.

Healius shares plummeted 22.7 per cent after the pathology services provider lowered its full-year profit forecasts and flagged the sale of its Agilex Biolabs business, citing a fall in GP attendances over the past months and softer pathology volumes, while costs continued to rise. The company warned that as last night’s budget included no new funding for pathology services, “charging out-of-pocket fees for pathology tests is the only viable option left to bridge the funding gap”.

Countering the bank losses on the ASX were gains by the mining heavyweights, again, and consumer discretionary stocks. BHP climbed another 2.9 per cent on its record close last night, while rivals Rio Tinto and Fortescue Metals rose 1.9 per cent and 2.8 per cent. Gold miners Northern Star Resources (up 1 per cent) and Evolution Mining (up 0.6 per cent) also advanced.

Prices for copper, BHP’s future key metal as it’s pivoting away from iron ore, jumped above $US14,000 a tonne to a record high overnight as a rebound in Chinese demand and mounting supply risks outweigh concerns about the Iran war’s impact on global growth. BHP this morning also announced that former BlueScope Steel CEO Mark Vassella will join its board as non-executive director next month.

Consumer discretionary stocks climbed 2.9 per cent, boosted by a 13.3 per cent jump in Aristocrat shares. The pokies maker reported a 9.1 per cent rise in first-half net income and announced it would extend its share buyback program by $1 billion.

Energy stocks were also higher, with Woodside up 0.4 per cent and Santos up 1.6 per cent. Oil prices steadied overnight, having gained almost 8 per cent over the past three sessions as a resolution to the Middle East conflict remains elusive, with Iranian exports showing further strain from a US naval blockade of the Strait of Hormuz. Brent crude traded near $US107 a barrel, while West Texas Intermediate futures was near $US101.

With AP/Bloomberg

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