Shares in Australian major banks bounce back after budget hit

(Photo by Ryan Pierse/Getty Images)

Australian major banks, which lost a combined $14 billion in market value over the past two days as the government slapped them with a levy, are bouncing back.

After losing almost 10% since the start of last week, investors are starting to favour the lenders again as valuation slips closer to historical average. A short while ago, the benchmark financials stock index is up 0.85% with the four major banks — ANZ, CBA, NAB, Westpac – and Macquarie up over 1%. The benchmark S&P/ASX 200 index climbed 0.6%.

“Banks have steadily lost ground since the start of last week, so today’s bounce isn’t surprising,” Omkar Joshi, a senior analyst at Regal Funds Management said. “While they are still facing a difficult environment, the pullback in share price over the last few days is starting to make them look a bit better.”

The four largest banks are trading at about 13.5 times their 12-month forward earnings, closer to the 10-year mean of about 13 times, Joshi said. The measure touched 14.5 last month, a resistance level they haven’t been able to breach for a long time.

Bank shares slumped Tuesday on reports the government was planning to impose a new tax at the annual budget. Federal treasurer Scott Morrison unveiled a six-basis point charge on the big banks’ liabilities. The tax, which starts from July 1, will only affect the five major lenders with assessed liabilities of $100 billion and could erode their annual profits by as much as 6%.

While the banks are still racking up record annual profits, challenges are mounting. They are bracing themselves for additional capital requirements, a slowdown in loan demand as the regulator clamps down on mortgages and sliding net interest margins.

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