A never-ending story of inquiries, reviews and proceedings…
While many regions around the world are seeing a push back against regulation in the banking industry, in Australia the banks continue to face significant headwinds. While the Financial System Inquiry (FSI) of 2014 has been completed and the banks are on a path to ‘Unquestionably Strong’ capital levels, many parts of the industry are still under inquiry, review or legal proceedings. While much of this appears justified given community concerns around bank behaviours, it is a material drag on the banks’ resources which will inevitably lead to lower returns for shareholders. While many investors in Australia are blasé around these reviews with a ‘been there, done that’ assessment, we believe that in aggregate these inquiries, reviews and legal proceedings will have a negative impact on shareholder returns despite the banks’ strong, oligopolistic industry structure. However, where the dust settles is difficult to predict. At a minimum these inquiries will lead to ongoing volatility in share prices as the market prices in potential negative outcomes into their releases. This is consistent with experiences around the announcement of the FSI, the Bank Levy and APRA’s interpretation of ‘Unquestionably Strong’. In this report we summarise the larger outstanding inquiries, reviews and legal proceedings into the banks. Please refer to Figure 2 below.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
