Day 519: 'Reckless'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 519.
Today in summary: Big bank shares have surged today signalling shareholder satisfaction with the election result; financial lobby groups have thrown their support behind the re-elected Coalition government; NZ’s reserve bank will stand firm on plans to make Australian banks increase the amount of equity capital they must hold; and Deutsche Bank refused to act on internal money laundering reports on Trump investments.
-- Alex
@AlexESampson
Current banker panic level: 😎🤩🤑🤐
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Big bank shares have surged 5-8% each today, adding more than A$21 billion to the sector after the Coalition’s election win. The surprise win also drove up Australia’s S&P/ASX 200 by 1.6% to an 11-year high. Mortgage Choice shares also rallied. Analysts and banks have said the relief rally came once investor concerns around instability and some Labor policies were quelled and signalled shareholders were happy with the election result.
Financial and property groups have thrown their support behind the re-elected Coalition government. Customer Owned Banking Association chief executive Michael Lawrence said the sector looked forward to the opportunity to improve legislative and regulatory frameworks to promote competition in retail banking. Mortgage broker Yellow Brick Road said the result had “energised” the sector.
The Finance Brokers Association of Australia congratulated Prime Minister Scott Morrison and vowed to work with the Coalition to ensure borrowers continued to have “choice in a healthy financial services industry”. The Property Council of Australia said the result showed Australians had rejected “risky” taxation changes at an uncertain time in the property cycle.
The Reserve Bank of New Zealand will stand firm on plans to make Australia’s big four banks increase the amount of equity capital they must hold for their NZ subsidiaries. The NZ central bank today insisted the measures were globally “consistent” to protect against banking crises. RBNZ had received 164 submissions on its plans when the consultation period ended on Friday. A summary of the submissions is due in June and a final decision is due in December.
Deutsche Bank’s anti-money laundering division recommended in 2016 and 2017 that transactions involving entities controlled by President Donald Trump and his son-in-law Jared Kushner be reported to a federal financial-crimes watchdog, the New York Times has reported. The activity set off alerts in a digital compliance system designed to detect illegal activity, but the bank, which lends to Trump and Kushner companies, allegedly refused to act on the reports.
Meanwhile in the US, the New York Times also revealed that “reckless” permit loans from banks and private lenders had devastated a generation of mostly immigrant taxi drivers. The loans were for taxi “medallions” — the city permit allowing a driver to own a cab instead of working for others.
The lending methods that “stripped immigrant families of their life savings” and “crushed drivers under debt they could not repay,” were similar to those used in housing during the 2008 global financial crisis. The taxi crisis has been tracked back to a small number of powerful industry leaders who artificially drove up the price of taxi medallions “creating a bubble that eventually burst”.
🔥🔥🔥
Today’s burn prize: Reserve Bank of New Zealand
“There is increasing evidence that the costs of bank failures – both economic and wellbeing costs – are higher than previously understood.”
RBNZ maintains that its proposed changes to regulatory capital requirements for locally incorporated banks is sound, researched policy that is globally consistent.
The Commentariat
“Unsaleable” and flawed analysis from Opposition Treasury spokesman Chris Bowen about franking credits and self-managed superannuation greased the wheels for Labor’s demise, writes Judith Sloan in The Australian.
“Had Labor succeeded in abolishing these cash refunds, many retirees would have simply been forced to cop lower incomes. It was always an unlikely election pitch and Bowen’s suggestion that if people didn’t like the policy, they could vote for someone else appears to have been embraced by a reasonable proportion of the electorate.”
Richard Gluyas warns in The Australian that the banking relief rally and “euphoria” of dodging a Labor government won’t last.
“Margins are eroding, the credit cycle has turned, and the deadweight of risk and compliance expenditure is rising.”
The Australian’s John Durie concurs with Gluyas, arguing the positive impact of maintaining the status quo won’t last.
“The bank price increases are based on the fact that banks are big dividend payers and the ALP defeat means there will be no changes to the treatment of franked dividends. All of the above are short term moves, because stocks tend to trade long term on fundamentals, not on short term sentiment swings.”
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