"In that context, the fine is well and truly in the price," Joshi says.

All of which helps explain the relief rally on Monday.

Not unusual

Nor is such an outcome unusual. There are countless episodes of investors positioning for more extreme outcomes than actually occur.

For example, and staying within the banking sector, ANZ shares jumped 5.6 per cent on the day it cut its dividend in early May 2016.

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The breathless commentary around Amazon destroying the local retailing industry is another case in point. At one stage it was enough to utter the name of the e-tailing behemoth to send the share prices of JB Hi-Fi, Harvey Norman and Myer into a tailspin. (Even now the consumer discretionary sector is the most shorted portion of the ASX, with a little over 6 per cent of the shares sold short, according to the latest ASIC data.)

Just as nature abhors a vacuum, the market is allergic to uncertainty – at least it is when that uncertainty is something that can hurt rather than help you.


So it was that Deutsche Bank's rapid response to the fine was: "One source of uncertainty removed."

But there are plenty more unknowns; the scrutiny on the sector is intense. A scathing APRA report into CBA's culture released early May came with a requirement the bank hold an extra $1 billion in capital. There may yet be fallout from this inquiry on the other lenders. The prudential regulator's Banking Executive Accountability Regime (BEAR) begins next month, as well as the final reports from the ACCC and Productivity Commission inquiries. More public hearings from the royal commission will keep the pot boiling, with an interim report due in September. That's months of uncertainty at least.

CBA shares bounced on Monday after the bank copped the steepest penalty in Australian corporate history. Wayne Taylor

As if all that wasn't enough – you had the announcement on Friday that senior ANZ bankers are the target of criminal cartel charges.

Price down

CBA's share price may have bounced on Monday in response to "bad news", but it's still down 10 per cent in 2018. Which raises the question: is it possible all the bad news is more than priced in, in which case might not now be a reasonable time to think about buying bank shares?

Joshi is not so sure.

"Obviously there's a fair bit of bad news in the price already, but it would be wrong to say it can't go lower. There are a lot of headwinds for the sector, although the dividend yield may appeal to some."

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Regulatory threats aside, the overarching issue is the banks are viewed as largely "ex-growth". There is a sense that demand for credit is well past its peak and, like house prices, should stagnate for the foreseeable future, along with revenues. Then there is the non-negligible risk of a housing correction that pushes bad debts higher and begins to call into question the banks' prized dividends.

All in all, there looks like plenty more scope for bad days for the banking sector than good ones over the coming months.