30 November 2017
Impact of Royal Commission on Bank Credit Outcome – Neutral
Following the announcement of a Royal Commission into Australian banks, the following are our thoughts on the impact to bank credit.
The Royal Commission is not a surprise as the Opposition has been agitating for an inquiry since mid-2016, and the major bank CEOs are being questioned regularly by the senate on their business practices.
We believe any impact on credit (ratings) and funding costs will be small, most of the costs to be borne by shareholders in terms of equity prices through higher costs for increased risk management/compliance costs, and slower revenue growth (however some of this is already priced in). As holders of bank debt, further focus on risk management is a strong positive.
Key points to note are
1. Divisions owned by banks which have caused most concerns have been sold, with any findings from these businesses not significantly impacting future revenue.
2. The enquiry is to take in all banks and the Superannuation funds, not just the big 4.
3. Banks are in the process of shrinking their balance sheets as they sell off capital intensive assets in response to new capital rules.
It is worth mentioning that ANZ successfully raised $650mm of 1-year funds in an oversubscribed offering, post the Royal Commission announcement. The margin of 25bpts was the tightest raising we have seen in this cycle, showing the market is still happy to keep funding the banks.
0413 465 207
0468 931 347