Australia Stocks Falter as Banks Weigh Heavily

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Speculation Australian banks face a new federal levy weighed heavily on their shares Tuesday, offsetting gains elsewhere to pull the wider market lower.

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According to unconfirmed local media reports, the coming federal budget will include a tax on financial transactions between banks, sometimes known as a Tobin tax, in an effort to raise 6 billion Australian dollars (US$4.43 billion) over four years.

Although the structure of the possible tax remains unclear, UBS in a research report estimated that it could reduce profit for the industry by about 5% a year.

While analysts suggested the banks have successfully passed on increased funding costs and other headwinds to customers through increased home-loan rates, some questioned whether borrowers would be able to absorb further increases without it hurting lending growth.

Reversing most of Monday's gains, the S&P/ASX 200 fell 31 points, or 0.5%, to end at 5839.9. The index has fallen in five of the last six sessions.

The Big Four banks collectively knocked more than 45 points off the ASX 200, countering gains among resources and industrial stocks and telecommunications companies.

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The banks' shares have been under pressure since Australia & New Zealand Banking's slightly weaker-than-expected first-half result a week ago. Subsequent earnings reports have highlighted a continued deterioration in lending margins, although each lender has built up capital and pointed to sound asset quality. Commonwealth Bank of Australia on Tuesday reported a lackluster third-quarter performance.

The selling is a pullback for the sector after the Big Four rose 25% on average in the run up to the just-ended earnings season since the surprise election of Donald Trump in November raised expectations his policies would stoke inflation and lead to higher U.S. interest rates.

Commonwealth Bank lost 3.9% for the day and was down 6.2% so far this month. Westpac Banking was 3.5% lower, ANZ weakened by 2.6% and National Australia Bank was 2.1% weaker.

The federal budget is due to be released later Tuesday.

Among energy stocks, Woodside Petroleum and Oil Search each rose 0.8%, while Santos climbed 2.2% as oil prices extended gains from the prior session in Asian trading.

Diversified miners BHP Billiton and Rio Tinto gained 0.8% and 0.5%, respectively, but iron-ore producer Fortescue Metals Group slipped 0.2%.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

May 09, 2017 03:11 ET (07:11 GMT)