Day 442: 'Avoid any unintended consequences'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 442.
Today in summary: Top bankers have had their pay slashed as banks redirect money to dividends and compliance; businesses with A$30 million in debt could qualify as “small” under a recommendation from the Hayne royal commission; and the National Farmers’ Federation has welcomed Labor’s vow to double the compensation for farmers wronged by their bank.
-- Alex
@AlexESampson
Current banker panic level: 😨😨
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1. The Australian is reporting that top bankers have had their pay cut amid the fallout from the banking royal commission, including a mounting compliance burden and “shareholder rage”. CBA announced last month its risk and compliance spend would rocket from 41% to 64% of operating expenses. Analysis by The Australian revealed the average pay, including bonuses, of the big four banks’ top 254 bankers dropped by almost A$300,000 last year to an average of A$1.2 million each — a six-year low.
2. Businesses with tens of millions of dollars in debt could qualify to be treated by their banks as “small” companies under a recommendation from the Hayne royal commission. The Sydney Morning Herald is reporting bankers are concerned that Commissioner Hayne's preferred definition would mean a business taking out multiple loans of less than A$5 million — but totalling A$20 million or A$30 million — could still be considered small, provided it employed fewer than 100 employees.
Suncorp banking and wealth business chief executive David Carter said:
“I don't think anyone in Australia thinks a business that can borrow $15 million, $20 million or $30 million is a small business. Industry consultation is required to avoid any unintended consequences.”
3. The National Farmers’ Federation has welcomed Labor’s promise to level the playing field for farmers at the raw end of banking misconduct, including moves to double the compensation for farmers who had been wronged by their bank. NFF chief executive Tony Mahar said plans to make it tougher for banks to foreclose on challenged farm debts and to retrospectively examine the charging of default interest were positive moves.
“Common sense would say if a farmer can’t meet their existing obligations on time, then they absolutely won’t have the capacity to service additional ‘penalty’ interest charges.”
Earlier this month the NFF was silent on the Banking Amendment (Rural Finance Reform) Bill 2019 which was introduced by Centre Alliance MP Rebekha Sharkie on February 18. Sharkie noted she was “deeply disappointed” the NFF “had no interest”.
Today’s burn prize: ANZ chairman David Gonski
🔥🔥🔥
“Those who disrespect the regulator are fools.”
Gonski, a former Westpac chief, said regulators have a job to do and should be taken seriously.
The Commentariat
Bloomberg opinion columnist and former banker Satyajit Das argues, in a featured piece in the Sydney Morning Herald, that the financial world is recreating the same conditions that kicked off the 2008 Global Financial Crisis.
“There are too many parallels to 2008 for comfort. Investors, many with uncertain expertise and weak holding power, have increased their exposure in the search for higher returns, which can be as high as 20% for the riskiest equity pieces. Bankers have aggressively underwritten leveraged loans and structured CLOs, earning around US$2.8 billion (A$3.95 billion) last year. Built into this speculative episode, like its predecessors, is a euphoric flight from reality and a blindness to risks that continue to rise.”
The Australian’s business correspondent Richard Gluyas writes that non-listed companies are excelling where listed companies are not. He points to ex-Westpac chief David Morgan’s comments over the weekend that the “conversation is entirely different” in private investment and JPMorgan boss Jamie Dimon’s opinion that public companies have an “unhealthy focus on short-term results”.
“The 2019 edition of McKinsey & Co’s annual review of private investing found that private equity’s net asset value expanded by more than seven-fold from 2002, or twice the rate of global public equities.”
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