The Commonwealth Bank of Australia (ASX: CBA) share price has fallen 10% in six months – has it reached a bottom?

Commonwealth Bank of Underperformance

Although CBA has been Australia's best big bank share to own over the past two decades, it has failed to keep pace with some of its peers over the past five years. CBA shares are up 34% while the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), is up 28%.

However, Bank of Queensland Limited (ASX: BOQ) is up 78% and ING Group NV, the Dutch bank operating in Australia, is up 118%.

Throughout 2017, the picture looks even worse. CBA has underperformed each of its peers and the market by a wide margin.

What's going on?

As the Economic Times reported earlier this week, Australia's biggest bank is preparing to fight allegations over money laundering and a class action brought forward by Maurice Blackburn and IMF Bentham Ltd (ASX: IMF) on behalf of shareholders.

AUSTRAC, the Australian financial intelligence agency, recently issued a report alleging a significant breach of disclosure rules.

Maurice Blackburn believes that just the news of the alleged breaches saw, "one of the biggest single price movements in CBA's recent history."  

Its website adds, "the class action alleges that CBA knew about serious instances of non-compliance with the AML/CTF Act and that its failure to disclose that information to the ASX amounts to misleading and deceptive conduct and a breach of its continuous disclosure obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules."

CBA has around 800,000 shareholders who may have already suffered when the news broke, and from any potential court proceedings.

Is 5.4% just volatility?

As much as I don't like the big banks and the wrongdoings of their advisers and staff, I think class actions can artificially detract from the financial system. Obviously, criminal penalties are different and CBA should front AUSTRAC in the court system for all of the allegations.

But what's interesting is that the class action is for the 5.4% fall in CBA shares! My shares fall 5.4% all the time — volatility is part and parcel of the market system if you ask me.

Foolish Takeaway

CBA shares have been sold down on account of slowing growth, rising interest rates and fears of a big fine from the courts. Personally, I think it's too early to speculate on the magnitude of the outcome.

Instead, as always, make sure your portfolio is well diversified by sector and geography. And if you want to buy bank shares in 2017, consider looking to names outside the Big Four. I know I have.

The post Is the Commonwealth Bank of Australia share price going to keep falling? appeared first on The Motley Fool Australia.

Negative commentary is never far away when you are holding bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).

Don't get me wrong, I'm not buying ASX-listed bank shares.

You can read my disclaimer in the link below. I own shares in the European owner of ING Direct, ING Groep; US bank Wells Fargo and…(one moment as I check my portfolio because it has been months since I logged in)…Lloyds Bank. In addition, in the future of banking space I own Apple and PayPal. Although, I wouldn't buy PayPal shares today.

Anyhow, I'm not a buyer of ASX bank shares because I think there are better opportunities elsewhere, including overseas.

However, I think it is worth at least trying to present a somewhat balanced argument.  

Reasons to Sell Big Bank Shares in 2017

• House prices are eye-watering and the implications for a market crash or meaningful correction are significant
• Wages growth is lacklustre and likely to stay that way, affecting loan serviceability and demand for credit
• Interest-only loans are a now a significant part of the big bank loan portfolios
• Household debt levels are at a record high
• The interest rate cycle may have bottomed
• Bad debts are at record lows
• Competition is increasing, forcing the banks to move rates higher out of cycle
• Regulation is increasing
• Everyone hates the banks
• Their dividends are cyclical
• Their earnings streams are correlated (that's finance for 'not as diversified as they could be')
• Shares are modestly overvalued
• If you are like most Aussies, you could be overexposed to the domestic property and banking system
• Finally, Australia has gone 26 years without a recession — that's a world record

Ok, breathe… here are some of the reasons not to sell your Big Bank shares…

Reasons to Hold Your Bank Shares in 2017

• If you're a long-time shareholder you will be forced to split your profit with the ATO
• The big banks are profit machines defying the odds with their cartel-like control of the market
• They pay big fully franked dividends
• The potential to lower costs with technology provides some dry powder
• Shares are not that expensive
• No-one knows when property or the economy will crash
• The banks have an implicit guarantee from the Government

Foolish Takeaway

The Big Banks have been great investments over the past two decades in a recession-less Australia. In that time they were deregulated, went out and acquired every competitor they could, then ramped up their lending. Now, the seasons are turning.

I'm not buying Aussie bank shares today or this year. But, as always, it is your decision whether or not to sell your shares based on the facts.

The post 7 reasons it may NOT be time to sell your Big Four bank shares appeared first on The Motley Fool Australia.

I'm not buying Commonwealth Bank of Australia (ASX: CBA) shares at today's prices, but I wouldn't be in a rush to sell.

Buy or sell, which is it?

You clicked on this article because you either:

• Own CBA shares, or
• You are considering owning them

Basically, you are not motivated to hear someone (me) say, "hold the shares". You want me to have an opinion.

"Buy"

"Sell!"

But, 99% of investing is doing nothing. Unfortunately, it's the other 1% that will change your life.

And most of the time, CBA — a large blue chip company — won't be a standout buy or sell. Most of the time you'll be buying or selling CBA shares at 'fair value'. That is, when they are clearly not over- or under-valued.

So why rush?

Why not wait for shares to be a 'bargain' before buying?

Provided your portfolio is well diversified — with less than 20% invested in Aussie bank shares — I see no clear reason to panic sell or buy CBA shares today.

3 reasons to hold CBA shares

• Dividends. At today's prices, CBA shares pay yearly dividends equivalent to 5% fully franked. If you're an Aussie resident holding the shares for more than 45 days you'll get the franking credits in your tax return — meaning your 'gross' dividend is over 7.1%. That's a handy income stream.
  Plus, I presume you bought shares in CBA from a lower price — so your dividend is even larger.

• Valuation. We can use dividends to value CBA. Assuming the bank pays $4.21 per share in yearly dividends growing at 2% per year, I value CBA shares at $85.88. Meaning, based purely on dividends, CBA shares are 'worth' a touch under $86. At their current price of $85, they are not a bargain or meaningfully overvalued. Of course, this may be a quick and potentially painful valuation.
• Growth in profits. I'm pretty negative on the Aussie banking sector. For the record, I own foreign banks like Wells Fargo, Lloyds Bank and ING Groep, from lower prices, but no Aussie bank shares. Indeed, I'm broadly concerned about Aussie banks.
  Nonetheless, I believe CBA has the potential to increase its profits if it continues to cut costs and interest rates rise very slowly. If interest rates rise (slowly!) CBA may be able to widen its profit margins, which could lead to more dividends.

The post 3 reasons to hold Commonwealth Bank of Australia shares appeared first on The Motley Fool Australia.

A recent fall in the National Australia Bank Ltd. (ASX: NAB) share price has boosted its fully franked dividend yield.

Currently, NAB shares are yielding an impressive dividend of 6.6% fully franked. That compares to the Australia and New Zealand Banking Group (ASX: ANZ) dividend of 5.7% and Woolworths Limited's (ASX: WOW) 3%.

However, after we include the value of those tax-effective franking credits, NAB's dividend yield blows out to an even more impressive 9.4% grossed up.

Historically, the sharemarket has returned slightly less than 10% per year, on average. A savvy investor might look at NAB's dividend and think to themselves, '9.4%, that's almost a market-beating return from the dividend alone!'

And you would be right.

Over the long term, dividends have played an enormous part in the returns from the sharemarket.

However, it is also important to consider the risks and potential downside in any investment. A recent slowdown in housing, increasing bank competition, rising interest rates and slower economic growth will each have implications for NAB's business.

Buy, Hold or Sell

If I was going to buy shares in any of Australia's Big Four banks at today's prices, NAB would be at the top of my list. However, in the sharemarket, there is no rush to do anything.

As someone once told me, it is the shares we do not buy that are more likely to make us money.

What's more, there are thousands of shares on local and international markets which are equally worthy of our consideration.

For example, last week, I bought shares of ING Groep, the owner of ING Direct. While it doesn't offer a huge dividend yield like NAB (it pays 4.3%), it offers international diversification and growth potential.

The post National Australia Bank Ltd.'s 6.6% fully franked dividend yield appeared first on The Motley Fool Australia.