Am I bothered?
Big bank regulatory risks are being priced in comfortably
The overriding impression listening to outgoing Commonwealth Bank chief Ian Narev on radio (ABC’s PM) yesterday, after he had delivered his last thumping profit result for the country’s biggest bank, was that he had us while he was coming and going.
“Which bank” was still mired in the Storm Financial scandal when Narev arrived, remained mired in the Commonwealth Financial Planning, CommInsure and AUSTRAC money-laundering scandals throughout his tenure, and faces rate-rigging action from the corporate watchdog, ASIC, and a royal commission as he heads for the exit.
Could Ian Narev care less? He leaves the former people’s bank already $45 million richer [$], after just over six years’ work. And this morning’s share market commentary is very revealing: regulatory headwinds are a downside risk, analysts acknowledge, and yet while CBA is currently “fighting more fires than its peers”, the bank is still priced at about a 10 per cent premium to the other big four banks. It is still investors’ favourite bank by a country mile.
Most analysts have neutral or “hold”’ recommendations on the CBA. Most are concerned about ongoing regulatory risk. Given the $575 million in provisions CBA announced yesterday – for potential AUSTRAC or other fines, customer refunds or compensation – most analysts have shaved their CBA profit forecasts for 2017–18 by a few percentage points. A few analysts thought there might be more provisions to come, with one writing that we are “closer to the beginning than the end” of this story. But to put that number into perspective: in the second half of last year the bank spent twice that amount – $1.2 billion – on regulatory costs. Five years ago, in 2012–13, that figure was $295 million. Even so, CBA has the strongest capital position of the banks. Its shares are back up modestly today.
The Productivity Commission has warned that competition in banking was “less than desirable” and had simply passed on the cost of APRA’s 30 per cent limit on interest-only loans to ordinary home loan customers, now paying an extra $500 million a year – roughly $87 per month on the average mortgage. Commentators decry that banks are “getting more powerful”, not less, and banking regulators have “lost their way” [$].
Considering the growing debates around inequality, wealth “trickling up”, and the sense that the Turnbull government governs mainly for big business, all of this has real political implications.
The government was dragged kicking and screaming to set up the Financial Services Royal Commission, which has its first hearing in Melbourne on Monday. The government ensured that the banks were okay with the hastily drafted terms of reference beforehand, and by limiting its term to a year made sure it could not dig too deep. Today we find the royal commission will give no protection to victims who are under “gag” or non-disclosure agreements. In short, the banks will take the royal commission in their stride. Four pillars, fiercely protected, too big to fail, untouchable.
since this morning
In a new series on Labor’s Victorian factional meltdown, Crikey’s Guy Rundle has obtained a copy of the new Left-Right agreement [$].
The prime minister will apologise to survivors of child sexual abuse by the end of this year and – supported by the Labor Opposition leader Bill Shorten – is urging the states to join a redress scheme recommended by the Royal Commission into Institutional Responses to Child Sexual Abuse.
in case you missed it
A review of the Closing the Gap policy has found it has been “effectively abandoned” amid extensive funding cuts.
One Nation will oppose [$] the government’s company tax cuts, which passed the lower house yesterday; meanwhile, The Australia Institute has written 10 reasons why the case for the tax cuts has collapsed.
Incoming senator Steve Martin confirmed on RN Breakfast this morning he will not stand down for Jacqui Lambie.
The Age reports that Labor’s candidate for Batman, ACTU president Ged Kearney, does not live in the electorate, while The Australian’s Niki Savva hints at [$] a Liberal-Labor deal to prevent a Greens win.
Paddy Manning is a contributing editor (politics) at The Monthly. He is a writer and journalist who has worked for the ABC, Fairfax, Crikey and the Australian. He is also the author of three books, including Boganaire: The rise and fall of Nathan Tinkler.
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