Day 513: 'Ominously started to turn'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 513.
Today in summary: Westpac has hit back at ASIC in court saying it has a “sophisticated system of analysis” to assess loan suitability; action from APRA is needed to promote competition in banking, according to a new COBA report; and investment platforms could be big winners from the Opposition's plan to cut franking credit refunds.
-- Alex
@AlexESampson
Current banker panic level: 😓🧐🤑
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The ASIC v Westpac court case on responsible lending came to a close today after seven days. A decision may not be delivered for weeks or months.
In its closing arguments yesterday ASIC made the case that Westpac breached the law by relying on the formulaic Household Expenditure Method to assess potential mortgage customers, rather than using it as a “cross-checking tool”. ASIC said this meant the bank failed to properly verify the actual financial position of borrowers 261,987 times.
Jeremy Clarke SC, for ASIC, said:
“The HEM itself is not a reliable estimate of the particular consumer’s financial expenses. We are saying they (Westpac) haven’t done the very first step of considering the customer’s financial position.”
Today attention turned to Westpac, which defended its loan assessments, saying it had a “sophisticated system of analysis” to assess potential mortgage claims. Jeremy Kirk SC, for Westpac, said ASIC’s case was “blurry”.
The court’s decision may see the HEM thrown out as a benchmark for responsible lending.
Policy action is needed to promote competition in banking, according to a report from Pegasus Economics, commissioned by the Customer Owned Banking Association. The independent report, released today, reveals changes to the regulatory framework (via APRA) for home lending are needed and that a more competitive banking market will improve efficiency and innovation.
COBA CEO Michael Lawrence said:
“The rules on risk weights mean there is too large a gap between the amount of capital that smaller banks must hold compared to the major banks.”
Investment platforms could get share of up to A$35 billion due to the Opposition's plan to cut franking credit refunds, the AFR is reporting. The extra cash will become available as self-managed super fund investors shift their investments using the platforms to spread tax benefits across their users, according to analysts. The fintech platforms, used by financial advisers to manage client wealth, have reportedly benefited from the move away from bank-aligned providers since the royal commission blasted them for poor management of funds.
Citi analyst Siraj Ahmed said:
“We estimate Netwealth could attract A$1.2 billion to $2.9 billion of incremental flows while HUB24 could attract $750 million to $1.9 billion of incremental flows.”
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Today’s burn prize: Veteran banking analyst Brett Le Mesurier
“By the time this disaster is over, we won’t be far short of A$10 billion.”
The big bank remediation and compliance bill could hit A$10 billion, according to Le Mesurier. His estimate covers the big four banks and AMP and includes the costs of the Hayne royal commission and regulatory fines, as well as increased spending on risk and compliance.
This comes after CBA yesterday announced its costs alone had reached nearly A$2.2 billion. However, Le Mesurier argued when CBA's fine for anti-money laundering breaches was included, its bill for wrongdoing was closer to A$3 billion.
The Commentariat
Yesterday’s CBA result has done little to lift recent banking gloom, Richard Gluyas writes in The Australian.
“Even with last year’s hike in variable mortgage rates, every line of revenue is under pressure. Remediation and compliance costs continue to mushroom, and after eight years of the most benign credit conditions imaginable, the credit cycle has ominously started to turn.”
Elizabeth Knight explains in the SMH why big banks don't care about the first-home buyer stunt. She points to CBA’s third-quarter results yesterday where CEO Matt Cormyn offered a lukewarm welcome of the scheme.
“Comyn doesn’t seem alarmed about it nor does he see much danger in the government’s policy because negative equity turns positive when house prices recover. I suspect the reason Comyn wasn’t wildly excited about the government’s first-home owner’s plan is that it won’t move the dial for the CBA, nor any of its big bank peers.”
Brendan Coates and John Daley from the Grattan Institute write that someone has to lose for first homebuyers to win. They go on to specify who that should be.
“Changing rules on negative gearing and capital gains tax is more likely to increase home ownership than guaranteeing part of the deposit. But no policy proposed in this Commonwealth election affects the really big lever for home ownership: increasing housing supply.”
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