The financial sector is stepping up its pushback to the damaging publicity from the Hayne royal commission as Australian Bankers Association head Anna Bligh, a past master of spin as former premier of Queensland, has issued a mea culpa or three.
The campaign will see the banking code of practice reformed, fees not charged on the accounts of deceased people and grandfathered commissions outlawed. A new era is promised, but will anything really change? Will the financial impact be all that dramatic and will it really cost the banks?
Probably not. Just as the banks easily paid for the 2016 bank levy from the Turnbull/Morrison government, the financial impact from the Hayne royal commission will be a pinprick.
According to evidence to the royal commission from ASIC, the banks are likely to be asked to refund around $1 billion for fees charged for no service. That $1 billion estimate will lead many to think the banks are being penalised, but that’s far from the truth.
Why won’t the $1 billion refund make a dint?
The cost will be easily met from the recent spate of rate rise for mortgages, which came on top of higher rates for interest-only loans which was extended to other home loans as well.
That has already lifted the net interest margins of the Bank of Queensland and Commonwealth. We will see the impact on NAB, ANZ and Westpac when they report their 2017-18 results in the next three weeks. The September lift in home loan rates has already gone into force from this month or late September. That means an extra boost for the bank’s net interest margins which are one of the key measures for a bank, along with its cost-to-income ratio.
Not the first time
Remember the laments from the banks and their media and market mates about the $6.4 billion four-year major bank levy imposed by the Turnbull government in the 2016-17 budget?
That was easily paid for by a combination of interest rate rises, falling funding costs, falling bad debt provisions and judicious cost cuts. The annual cost was more than $1 billion, which had little or no impact on the bank’s profitability.
The big four bank earned a combined profit of $31 billion in the 2016-17 financial year, which was up 6.4% from 2015-16, according to a KPMG report.
That report shows where the banks will get the money from — interest income of $61.3 billion in 2016-17. A 1% improvement in net interest income across the banks adds more than $600 million to that figure which will be higher in 2018-19 due to September’s 0.14% boost to bank mortgage rates by the ANZ, CBA and Westpac, but not NAB which is now in its own counterattack/charm offensive.
According to UBS banking analyst Jonathan Mott, for the ANZ at least, that 14-point increase was double what was really needed to cover high wholesale funding costs.
“This round of repricing is significant in that it passes through more than the additional wholesale funding costs to existing customers — especially at ANZ,” he wrote. “In fact, if wholesale funding costs remain at current levels we estimate it will cost ANZ approximately $150m pre-tax. However, we estimate ANZ’s mortgage repricing is almost twice that large at around $300m pre-tax.”
“How much will the royal commission end up costing the banks?”
Not nearly enough, obviously.
What should happen is that they forfeit their profits from the years where they did wrong (ie many years), the CEOs and top executives must pay back their bonuses from those years and some should possibly face criminal charges.
But that won’t happen.
I don’t remember the Great Train Robbers being offered the option of refunding the money that they stole.
The 1 billion refund will not hurt the banks because it is money that they stole, so why would they complain? Jail the bastards!
There are no ‘real’ penalties imposed upon Financial Services entities. Alleged penalties are simply reclassification or re-purposing of client monies. Purely illusory penalties. A working man/woman commits a crime of any substance either suffers actual, ‘real’ loss of income, reputation and/or allocated criminal status for life. Incarceration depends upon existing number of bodies per available cell at time of conviction.
Bankers, Insurers et al . . . any above ‘cleaner’, ‘secretarial’ level suffer naught beyond polite recommendation ‘now is the time for you to broaden experience’ with another employer elsewhere within financial services. Just like retiring politicians take up very well remunerated commercial agreements or, if still wishing to bask in public eye; take up ‘leadership’ of prominent, well resourced non government community organisations.
No amount of recompense will ever be enough. The customers who lost their homes or business will not regain them, farmers who were forced off their land cannot return. And let’s not overlook the tragic suicides of customers under insufferable pressure.
It’s not possible to calculate reparation for the above…
I reckon that the only way to get some action on the banking rip-offs is to make the banking executives responsible. We have seen how they can just worm their way back into the same situational rip-offs (or devise new ones) because, as this article states, the amounts of money that the banks are penalised is chicken feed. What if the responsibilities of the bank were divided up amongst the top executives with each one personally responsible for a range of policies. Should this sort of thing happen again, the executive in charge of the particular policy which is found to be illegal or unethical will face a penalty as well as the bank. It may be a very large fine or it may be imprisonment. It could also be disqualification from holding office in a financial body. This sort of penalty would certainly make them think twice about ripping off the public.