A new report has warned that billions of dollars could be wiped from the value of the big four banks if Labor’s proposed franking credit change goes through.
The report from Citigroup said that Australia’s big banks could face up to 13 per cent reduction in their target valuations if the change occurred.
“Potential changes to dividend imputation and the removal of cash refunds from investors is likely to have a meaningful impact on bank shareholders.
“Depending on the changes implemented, this could impact major bank valuations by up to 13 per cent.”
Labor announced last year its plan to remove the concession that gives cash refunds for excess dividend imputation credits.
In a statement made by Chris Bowen, the opposition party said that stopping this practice would help improve the Australian budget.
“Closing down this concession will save the budget $11.4 billion over the forward estimates from 2018–19 and improve the budget bottom line by $59 billion over the medium term,” he said.
However, the move has been met with criticism from various industry bodies, with the Citibank research being the latest.
Citigroup’s research found that franking credits were responsible for a large proportion of the value of major banks.
Under the research’s estimates Commonwealth Bank would see the biggest loss to its annual target share price, slipping from $72.05 to $63.84.
Meanwhile NAB would see a $3.91 reduction from $31.12 to $27.21, with Westpac just behind with a slip from $29.87 to $26.18 and ANZ falling from $30.19 to $26.89.
Citigroup warned that the policy change was a significant issue for the financial sector but said that banks should not fear a change of government in the next election due to Labor’s negative gearing policy.
“Negative gearing as an investment strategy is likely to be relatively less compelling than it has been in the past.
“Consequently, the impacts of changing government policy are expected to be somewhat muted.”
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