Are Australia’s big banks worth avoiding after decades of stellar performance?

It used to be one of the takedowns of the Australian share market.

Whenever a boastful trader would spout about a year of furious share market trading and activity, you just needed to ask them how their investment results compare with simply buying shares in all of the big banks in January and playing golf the rest of the year?

Nine times out of ten the “slack’’ golf investor would win, beating even fairly good traders as the big banks continued to find new ways to grow and prosper and reward their shareholders with lush dividends and outstanding capital growth.

Is the super cycle over?

The question now is whether that bank “super-cycle’’ has finally come to an end or is merely going through one of those inevitable slumps that will once again result in the lazy “golf’’ investor coming out in front.

The first thing that even a cursory glance at the ASX reveals is that the big banks still dominate, despite a welter of negative headlines and share price falls resulting from a revealing Royal Commission.

Including Macquarie with the traditional four pillars – ANZ, NAB, Westpac and Commonwealth – the big banks still make up a whisker under 44 per cent of the biggest 20 stocks on the ASX by market capitalisation.

That is an extraordinarily large percentage of the overall market and only goes higher if you include the large insurers and financial planning companies such as AMP which have also been under fire at the Royal Commission.

Morgan Stanley believes banks are heading lower

Some brokers are convinced a reversal of the bank’s stellar performance is only just getting underway with Morgan Stanley having sliced its share price targets for the big four by 7 per cent and forecast a drop in the share prices of the Commonwealth Bank, Westpac and National Australia Bank over the next year.

Morgan Stanley said that tighter lending standards and a greater focus on responsible lending would cut lending by the big four from A$380 billion last financial year to just A$350 billion in both the 2019 and 2020 financial years.

Banks would also need to spend more on regulatory and compliance costs over the next two to three years and face new threats from a growing range of more nimble financial technology players which would nibble away at their market share.

Being a banker no longer risk free

Combined with these threats to profits and lending, being a banker is no longer a risk-free way to grow wealthy.

After the GFC, many business owners and ordinary workers looked on with great resentment as banks around the world – and the big five here in Australia – were guaranteed and rescued by government with blank cheques and guarantees.

It didn’t matter how foolish the bankers had been in making loans and taking risks, they were still rated as being too big to fail and carried on like nothing had happened.

That period came to a very distinct end this week as criminal cartel charges were laid against individual bankers working for ANZ, Citigroup and Deutsche Bank.

Bankers facing criminal cartel charges

Six senior bankers, including ANZ’s group treasurer and the former country heads of Citi and Deutsche, were charged on Monday over a 2015 issue of new ANZ shares and if convicted face up to 10 years in jail.

Bankers charged include Citigroup Australia’s former chief executive, Stephen Roberts, its current Australian capital markets origination head, John McLean, and global head of foreign exchange, Itay Tuchman.

Deutsche’s former head of Australia, Michael Ormaechea, and its former head of Australian equity capital markets, Michael Richardson, have been charged, as has ANZ group treasurer Rick Moscati.

All three banks have denied the allegations and pledged to vigorously defend themselves and their employees.

Whatever the result of the trial, which will continue for a long time, the fact that bankers are facing criminal charges will put a chill through the whole sector and give investors pause about putting too much cash on the line investing in the big banks.

Then again, “golf’’ investors might see the current spate of share price weakness as the perfect opportunity to relax into a “casual’’ investment.