Australian Banking Sector: Royal Commission announced

Bell Potter

Process fast-tracked, findings due by 1 February 2019: The government has announced a royal commission into the banking sector. This followed a letter released by the four major banks earlier today highlighting the need for certainty and the imperative to restore confidence in the sector.

This letter proposed items for consideration such as the composition of the commissioners, proposed terms of reference (including being free of political influence) and the need to replace a range of ongoing inquiries – that may or may not be acted upon by the government. The royal commission is wide-ranging (spanning the major and regional banks, wealth managers, superannuation providers and insurance companies) with the final report to be due by 1 February 2019.

Short term volatility, long term certainty

There are lots of moving parts in the equation and the cost to each bank will become clearer in due course – that is the price of holding a bank licence and long term certainty. In the meantime, the banks that should be more resilient to short term volatility include ones that have stronger domestic top line prospects and sufficient room for further cost management.

Larger retail-oriented banks such as CBA and WBC would probably incur higher costs given their scale and complexity while the regionals should fare better given their community involvement and focus. Of the majors, we believe NAB is the most resilient – based on flexibility to further reduce costs (including putting on hold its accelerated investment spend given changing market conditions) – although we will revisit the pecking order as soon as practicable. Regardless, MQG remains our top sector pick.

  • ANZ (Hold, price target $32.50)
  • CBA (Buy, price target $83.90)
  • NAB (Buy, price target $34.20)
  • WBC (Buy, price target $34.60)
  • BEN (Hold, price target 12.50)
  • BOQ (Hold, price target $13.50)
  • MQG (Buy, price target $108.00)


About this contributor

Bell Potter

Bell Potter

, Stockbroker

Bell Potter is a member of the Bell Financial Group (BFG) of companies. We are one of Australia's largest full service stockbrokers and a leading financial advisory firm, offering a full range of services to private, corporate and institutional...

Expertise

ASX:ANZ ASX:BOQ ASX:BEN ASX:CBA ASX:MQG ASX:NAB ASX:WBC

Comments

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John Smith

It will be great to clear the air and get this whole thing out of the way.

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Graeme Holbeach

Let me get this straight. Labor and the Nats have been pushing for a Royal Commision. The Libs have now been given permission from the banks to call one and are being told by them what the terms of reference should be. It is to be "wide ranging", so will include the likes of industry super funds that its members are happy with but the banks (anti competition) and Lib right wingers (anti union) hate. Does any intelligent person really think anything good will come from this?

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Ross crawford

People have a choice don’t like banks don’t deal with them but people like low interest rates and great dividends so stop whinging

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Patrick Fresne

Good point Graeme.

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Daryl Nunn

We have a weak government that can't survive on its own policies and has to depend on having its fingers in our bank's profits to maintain Australia's financial integrity. Rather than looking at our well run banks maybe we should be looking at an inefficient political system be it Liberal, National or Labor.

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