The opportunities behind NAB’s potential $8 billion fine

Wednesday, 18 December 2019
Melbourne, Australia
By Bernd Struben

  • Markets
  • Psst, don’t tell Greta…

I knew the more I dug into the “unbundling” of Australia’s big banks that I’d hit pay dirt. But I had no idea how fast this thing would start moving.

Ryan Dinse, Editor, Exponential Stock Investor

In yesterday’s Insider we looked at the mounting challenges facing Australia’s traditional banks. Particularly the Big Four.

With that in mind we’ll keep our focus on the banks’ woes…and how you can potentially profit from those woes…brief today.

But on that front I do have an important announcement. Our small-cap guru, Ryan Dinse, just published an urgent follow-up report on his ‘great bank unbundling’ thesis. That went live this morning. You can check it out here.

In a nutshell, the banks are under fire from three fronts.

They’re facing the ongoing fallout from the royal commission.

They’re battling a host of tech savvy competitors biting at their heals — from industry giants like Facebook and Google to tiny upstarts you’ve likely never heard of.

And they appear woefully unprepared for a generational shift already underway. One which sees younger Aussies increasingly turning away from traditional banking services. In fact, Ryan cites a study revealing 33% of today’s millennials believe that in five years they won’t need a bank at all.

Sticking with my promise to keep it brief, we’ll look at just one new blow fired at the banks. The legal bombshell ASIC dropped onto NAB yesterday afternoon.

From the Sydney Morning Herald:

The Australian Securities and Investments Commission (ASIC) alleged late on Tuesday that NAB breached the law 12,347 times, with penalties for each contravention ranging from $250,000 to $2.1 million.

If all of the alleged breaches were proven and they attracted the maximum penalty, the potential total fine would equal about $8 billion.

The article goes on to mention that the odds of NAB actually being whacked with an $8 billion fine are ‘highly unlikely’. That’s certainly true. But still. That’s one heck of a Sword of Damocles they’ve got hanging over their head.

The ASIC website states they’re taking ‘court action against NAB for fees for no service and fee disclosure statement failures’.

You can google up the rest of the sordid details if you’re so inclined.

The more important thing for us, as investors, is how to respond to the big banks’ growing headwinds.

For that, we turn back to Ryan Dinse:

I call moments like this collision points. When several trends converge to form a new super trend.

It’s a change that’s not just important at the point of impact — but also in the enduring momentum we see after the collision.

These are points where — if you pick the right opportunities — there is the potential for massive, exponential profits.’

In Ryan’s just released follow up report he details four of these opportunities.

Each has the potential to deliver 10-bagger plus sized gains. But, as with all small-caps shooting for the moon, you also risk losing some or all of your money.

Ryan doesn’t shy away from the reality of those risks either. He covers all that…plus the tremendous upside potential…in his new follow up report.

You can find that here.

Now to the markets.

Markets

Overnight, the Dow Jones Industrial Average closed up 31.27 points, or 0.11%.

The S&P 500 closed up 1.07 points, or 0.03%.

In Europe the Euro Stoxx 50 index closed down 27.46 points, or 0.73%. Meanwhile, the FTSE 100 gained 0.08%, and Germany’s DAX closed down 119.83 points, or 0.89%.

In Asian markets Japan’s Nikkei 225 is down 109.31 points, or 0.45%. China’s CSI 300 is flat at 0.00%.

The S&P/ASX 200 is up 10.61 points, or 0.16%.

West Texas Intermediate crude oil is US$60.55 per barrel. Brent crude is US$66.10 per barrel. Crude remains at the top end of the trading range I forecast for 2019. But the supply glut story, driven by record US production, isn’t going away.

For example…

US stockpiles increased by 4.7 million barrels last week, according to the American Petroleum Institute. While petrol stockpiles surged 5.6 million barrels. Bloomberg tells us that’s the biggest petrol build since January.

Renewed hopes on a trade war cease fire driving up global demand for oil have seen prices nudge higher this week. But the tsunami of oil waiting to flood the markets should see the price take a steep dive next year.

Turning to gold, the yellow metal is trading for US$1,475.49 (AU$2,154.63) per troy ounce. Silver is US$17.00 (AU$24.83) per troy ounce.

One bitcoin is worth US$6,599.28. That’s down another 4.1% since I wrote to you yesterday, bringing it down 10.4% over the past week. Time to ‘buy the dip’? Stay atop all the latest crypto investing advice here.

The Aussie dollar is worth 68.48 US cents.

Psst, don’t tell Greta…

I won’t take a swipe at Greta Thunberg. The 16-year-old Swedish ecowarrior has already taken shots across the bow from the likes of Trump, Bolsonaro and Putin.

She may come off as angry, entitled, and idealistic. But then she’s a teenager.

That’s why I’m hoping she hasn’t read the International Energy Agency’s latest report on Asia’s growing appetite for coal.

From The Australian:

The International Energy Agency predicts a 4.6 per cent rise in coal-powered generation in India will drive the largest ­increase in demand for coal, while strong growth in Indonesia and Vietnam will lift coal demand by 5 per cent in those countries over the next five years…

Overall global coal demand increased by 1.1 per cent last year and is projected to remain steady until 2024. The IEA report forecasts total Australian coal production will rise by 1.4 per cent annually, from 409 million tonnes in 2018 to 444 million tonnes in 2024.

As you can see from the graph below, the demand for both Australian thermal and coking coal is on the rise. (Thermal coal is generally used in power plants. Coking coal, with a higher energy content, is mostly used to produce steel and other metals.)



chart image
Sources: IEA / The Australian
Click to enlarge

Despite all the talk of the end of carbon based fuels, the IEA says coal will remain the world’s dominant energy source until at least 2024. The agency forecasts coal’s dominance slipping from 38% of the total mix last year to 35% in 2024.

But that’s just coal’s percentage of the global energy grid. In actual tonnage terms, the IEA expects global demand to continue increasing over the next five years, albeit at a slower pace.

China, for example, burned through 1% more coal than the previous year. And this in a nation that already consumes half the world’s coal output.

If you’re baking away in the heatwave engulfing most of Australia…and believe coal is responsible for dialling up the mercury…that may not come as the best of news.

But with the IEA report indicating Aussie coal exports increased 0.8% to reach $97.5 billion, and India’s 1.37 billion people upping their coal fired electricity by 4.6%, there’s big money on the table here for the right companies.

In Australia the biggest players in the sector are the diversified miners, like BHP.

From a pureplay perspective you have a host of smaller companies. New Hope, Yancoal, Whitehaven and Coronado count among the biggest pure play coal stocks.

All four have seen their share prices hammered in 2019.

Yancoal, for example, is down 22% this calendar year. And New Hope shares are down 35%.

That doesn’t mean these stocks couldn’t fall further in 2020. But with continued strong demand for Aussie coal they’re worth further investigation.

Cheers,
Bernd