What's dragging the CBA, Westpac and AMP share prices lower today?

The announcement of class actions against Commonwealth Bank, AMP and Westpac is dragging their share prices lower in early trade.

| More on:
Man in business attire dragging large desk behind him

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The share prices of 3 stalwarts of the S&P/ASX 200 Index (ASX: XJO) have collectively fallen this morning in early trade.

At the time of writing, the Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) share prices have retreated by close to 2% to $71.88 and $17.32, respectively. The AMP Limited (ASX: AMP) share price has been the hardest hit of the 3 financial institutions, falling by as much as 12% to lows of $1.475.

What's dragging these ASX blue-chips lower?

Class action woes

This morning, the ABC revealed that hundreds of thousands of Australians who were forced to pay 'excessive insurance premiums' may have a basis for pursuing compensation claims against the financial companies, as part of 3 separate class actions.

Although court claims against Commonwealth Bank and Westpac's superannuation arm, BT Group, are expected to be commenced early next week, AMP has already been informed of claims filed against it this week in the Federal Court.

The practice leader for Shine Lawyers, the firm leading the litigation against Commonwealth Bank, AMP and Westpac, said the companies' "business models were set up to promote their own products and their own interests ahead of those of their own clients and their members."

The court actions mainly relate to life insurance and income protection policies offered by the 3 institutions.

It is anticipated that the 3 court actions are expected to be some of the largest since the Banking Royal Commission, and that is going to hurt all 3 companies if they are found to be liable for the alleged breaches.

The expected payout if wrongdoing is proven could be in the tens of millions, and that's a significant headwind sending the share prices of all 3 lower.

AMP has also been hit hard due to its announcement to the market this morning pertaining to profit guidance for the first half of FY20. As reported by my Foolish colleague here, the struggling financial institution expects underlying profit to be in the range of $140–$150 million. Judging by the dramatic fall in the AMP share price this morning, the market believes this result is an underperformance.

Is this a buying opportunity?

Some would argue that this morning's news provides investors with the ability to buy discounted shares in CommBank, Westpac and AMP.

Commonwealth Bank will announce its full-year results and provide an update on its dividend on 12 August, so many investors may take today's opportunity to buy in and take advantage of its excellent dividend record moving forward. Westpac and CommBank (and until relatively recently, AMP) shares have historically paid out sizeable yields on a fully-franked basis to their shareholders, making these financial institutions a reliable income source for many Australian investors.

On the other hand, this litigation may lead to further negative price movements for these 3 ASX shares in the coming days and weeks, as others may sell out and take profits from the recent resurgence of financial stocks.

The three companies are such large institutions that their share prices will eventually make a comeback, so in my opinion the majority of shareholders will likely take today's news as a short-term headwind.

Motley Fool contributor Toby Thomas owns shares of Commonwealth Bank of Australia. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

$10,000 invested in the ASX 200 5 years ago is now worth…

Guess how much $10,000 invested in the ASX 200 five years ago is worth today!

Read more »

Retired couple hugging and laughing.
Share Market News

Eyeing retirement: Do you really need $1 million?

AustralianSuper recently weighed in.

Read more »

Happy woman working on a laptop.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a pleasant end to the trading week for investors this Friday.

Read more »

Close-up of a business man's hand stacking gold coins into piles on a desktop.
Opinions

If I had a big cash pile like Warren Buffett, here's how I'd spend it in 2025

I'd put Buffett's billions to work straight away.

Read more »

Man pointing at a blue rising share price graph.
Technology Shares

Up 30% in a month, this ASX 200 tech share is 'a compelling opportunity': expert

Analysts from listed investment company WAM Capital say this ASX 200 tech stock is worth watching.

Read more »

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.
52-Week Highs

5 ASX 200 shares hitting multi-year highs after strongly rebounding from tariff turmoil

These stocks have hit new price milestones amid a day in the green for the ASX 200.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Share Market News

3 key takeaways from the 2025 Macquarie Conference

More than one hundred companies presented at the Macquarie Conference this year. Here’s what we learned.

Read more »

An executive in a suit smooths his hair and laughs as he looks at his laptop feeling surprised and delighted.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »