Who will wear the new bank levy?

Market Matters, Market Matters Live, Charlie Aitken, James Gerrish, bank levy, banking sector, dividends, wealth management, Shaw and Partners

The new bank levy proposed in the 2017 federal budget is likely to pass the Senate, but the cost is unlikely to impact shareholders or customers greatly, investment experts say.

Shaw and Partners senior partner James Gerrish told attendees at yesterday’s Market Matters Live event that the new levy is likely to pass the Senate given the current political environment.

“We’ve got a government that’s under pressure and a government that’s trying to find revenue,” Mr Gerrish said.

“If they can find it in the banks – and they couldn’t really find it in the materials space a couple of years ago – they’re going to try and do it, and it’s going to go through Parliament and it’s going to be something the banks have to wear.”

However, Mr Gerrish said the cost of this levy is unlikely to be passed fully on to customers, nor will shareholders bear the full impact of the predicted 5 per cent earnings loss. He predicted the banks will probably pass a component of the levy on to customers and wear part of it themselves.

Aitken Investment Management’s chief investment officer Charlie Aitken said the Australian banking sector usually sees a price fall of 10 per cent in May each year, and the recent fall of 13 or 14 per cent in May 2017 reflectes “the earnings downgrades that have come off the back of the bank tax”. But Mr Aitken said this should not be a major concern for investors.

“I think for everyone in this room, all you’re really worried about is the sustainability of the dividend, and I don’t think there’s anyone who’s changed the dividend forecast in any way for any of the major banks during this period,” he said.

“If you believe the dividend forecast, and I tend to because I think that they’ll be right for the next few years, then you’re simply just getting paid a higher dividend by hedge funds and other people that are having a little bit of fun. I think the greater risk in Australia is actually in healthcare sector.”

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