More clarity on the probable new rules for our big banks, which were reported yesterday.
They will impact three of the four, according to banking analysts – ANZ, NAB and Commonwealth (CBA).
The three banks will lose benefits they received from issuing debt through their wealth management units.
Westpac (WBC) won’t be impacted, according to analysts because it doesn’t use its wealth arm to raise funds, as the other three do.
That could very well set Westpac to be an outperformer over the next year or two because analysts feel that it won’t have the constraints on payouts that its three rivals will.
The move, revealed by the regulator, APRA, won’t take place until 2017, but that means the ANZ, NAB and the CBA will have to bolster their capital needs substantially between now and then, which in turn could see them haul back on dividend payouts to shareholders.
But Westpac will join its three rivals in being impacted by the extra 1 in capital they will have to find by 2016 because they are classified as systemically important banks to the domestic Australian financial system and economy.
UBS analysts said ANZ and NAB would both see their tier one capital ratios fall to 8.55 per cent in 2016 as a result of the change, while CBA’s would fall to 9.01 per cent.
NAB and ANZ both said they expected to meet the new requirements through organic capital generation, while CBA said it would have a "minimal" impact.
Forcing banks to set aside more capital is a way of making lenders safer, but also has the automatic impact of dampening returns on capital.
JP Morgan analyst Scott Manning said the changes would diminish the banks’ returns. ”The overall impact is quite muted but it does make it a bit more challenging,” Mr Manning said ion a note yesterday.
CIMB’s bank analyst John Buonaccorsi said the change, coupled with the 1% lift in capital, would have a ”fairly significant” impact on affected banks.
He said that while it was unlikely to change headline dividends, he said it made special dividends less likely from the affected banks.
It could see the banks return to making their dividend reinvestment plans as a de-facto capital raising tool – by increasing the discount to make the shares more attractive to take instead of cash.
The share prices of all three of the four banks rose yesterday. Westpac shares were up 0.&%, after falling 1.2% on Monday after releasing a good interim profit.
The Commonwealth Bank was up 0.4% to $79.29, ANZ Banking Group gained 0.3% cent to $34.08, but he National Australia Bank lost 0.3% to $34.11 ahead of its half-year profit results tomorrow..
Bendigo and Adelaide Bank lost 1.7% to $11.20 after emerging from a trading halt to announce a capital raising to fund the $1.78 billion purchase of Victoria’s Rural Finance.
