Posting this just before the findings of the royal commission are made public...

The big banks have all suffered significant hits to their share price (10-20%) since the royal commission was announced. While we are yet to hear the specific findings and recommendations, one could argue these are generally already factored into the share price.

My theory is that the only way is up from here. Maybe the commissioner won’t be as harsh as expected. More likely the bank will take it as an opportunity to cut some of the “bad” sections of the business. I think the changes that come about will result in customers having more trust in the banks (wasn’t that kind of the point of the royal commission?) and hence people will revert to the Big 4 rather than the alternative smaller institutions.

NAB will be forced to make their business more robust, remove perverse incentives, and act under the watchful eye of enhanced regulation. The changes will be applied with the aim of making the business better over the next few years, and surely that will be good for shareholders.

I’m keen to see responses to this post soon, and after we are all more informed.

In the meantime, I’m adding NAB to my scorecard. The only way is up.