Later today, the heads of our big four banks start fronting up to a Federal parliamentary committee to update us on what they have been doing as model citizens of Australia.
It is an alternative devised by the Turnbull government to avoid the Royal Commission demanded by the ALP, the Greens and some cross benchers. The central question, will we be any wiser at the end on Thursday of what is essentially a smoke and mirrors operation?
Will it be any different to a well organised question and answer session at the banks AGMs in November (for the CBA) and December in December?
Each bank CEO will have three hours before the committee starting with the CBA’s Ian Narev this afternoon, with the ANZ’s Shayne Elliott tomorrow and Westpac’s Brian Hartzer and the NAB’s Andrew Thorburn on Thursday.
Just what this three days of questioning will find out, is hard to see. You see, it’s all in the timing – and some strategic silence.
Three of the four – Messrs Elliott, Hartzer and Thorburn can’t really discuss very much because their banks ruled off their 2015-16 balance dates on Friday, September 30, and are therefore prohibited from speaking about operational and associated issues until the profits are released at the end of this month or in early November.
And if the bank CEOs say something that is considered to be market sensitive, then they could be in trouble with the ASX and ASIC under the continuous disclosure rules.
But the fourth CEO, Ian Narev, can talk because his bank balanced on June 30 – although the AGM isn’t until November 9 (when the first quarter trading update will be issued).
And don’t the owners of the bank, the shareholders deserve to hear his thoughts first, rather than an unrepresentative group of politicians being used by the Turnbull government to avoid the Royal Commission?
The banks have hardly stood out in the stockmarket in their 2015-16 financial years. The CBA saw its shares ease 1.3%, the NAB lost 4% and Westpac was almost steady with a dip of just 0.1%. Only the ANZ saw a positive gain of 2.6%. For 2016 so far its a different story.
CBA shares are on the nose, shedding 14.3% of their value, while Westpac is also a bit whiffy with a loss of 10.6%. The NAB has lost 3.2%, but only the ANZ is up – just 0.4%, but that is outperformance compared to the CBA.
Dividends and return on capital will be of greater importance for most shareholders and analysts. This grilling by a lightweight parliamentary committee is the least of the market’s fears and the banks.
There’s a growing belief that the Westpac and the NAB will be forced to join the ANZ in cutting their dividends – either the 2015-16 final or the 2016-17 interim next May.
So what will be asked of the banks over the next three days?
No doubt a lot about some of the financial advice scandals – the bankers will easily repel those by pointing to the investigations, reviews redress systems in place. Late and other fees will no doubt get an outing (even though the High Court knocked that one on the head).
Those charges from ASIC with their claims of trying to rig the bank bill swap rate market against three of the four (ANZ, Westpac and NAB) will also be easily deflected by the claim of subjudice.
Will any one on the committee have the background or the wit to ask the bankers about the “too big to fail concept’? In other words, all four banks are systemically important to the Australian economy, so regulators say they should hold more capital and have bigger buffers and tougher prudential oversight.
They are moaning and groaning about this, but seeing as Australian taxpayers bailed them out in the GFC through the deposit and debt guarantees (the latter allowing the banks to use Australia’s AAA credit rating for several years, for a fee), the too big to fail idea still has legs.
At the same time the Reserve Bank funded the banks and the whole economy for more than a month via repos of high quality securities and home mortgages that replaced the money the banks usually borrow from offshore. So in effect the banks were bailed out three ways by the Australian taxpayer.
The nervousness about the fate of the shrunken German giant, Deutsche Bank, tells us those fears about bank stability are still there.
Deutsche Bank has trillions of dollars of financial derivatives on its books and if it was to collapse or need bailing out, financial markets around the world would freeze and the RBA would be needed to support the financial system and the banks and no doubt debt guarantees would be asked for by the banks.
These fears will be why bank shares remain volatile, not questioning by poorly prepared politicians, along with the approaching reporting season for the ANZ, NAB and Westpac (and not to mention Bank of Queensland which is out shortly). Macquarie Group is also to report its 2016-17 interim result and should have really been called to appear before the committee.
