There were some serious bombshells from the Banking Royal Commission’s final report, released this afternoon, which included 76 recommendations.
In addition to covering the highlights of the report, we will be looking at what effects this could have for Australian share and property investors.
Banking Royal Commission unleashes a broadside at the sector, but where are the names?
By our count, the report uses the word ‘criminal’ 23 times.
As commissioner Hayne points out with regards to the potential of criminal proceedings:
‘Examination of these issues by ASIC is still continuing, and it would not be right for me to anticipate the outcome of those deliberations. Nor would it be right for me now to name the entities I identified in my communication to ASIC.’
So while we did not get a conclusive answer on the individuals responsible, Hayne has ‘identified’ entities to ASIC.
It is possible that NAB may be in particular trouble as it was singled out for criticism:
‘Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues. I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million.’
Mr. Hayne has made 24 referrals to regulators for potential civil and criminal misconduct.
Furthermore, under Recommendation 7.2 we find the following:
‘Criminal penalties should be increased for failure to report as and when required…a civil penalty should be introduced in addition to the criminal offence for failure to report as and when required.’
So watch this space when it comes to criminal sanctions.
Housing prices could fall further as credit tightens
One of the key risks as bankers become more cautious in the wake of the recommendations, is that credit could tighten.
This could have a flow on effect to the housing market, with prices already in severe downturn.
Below you can see that building approvals are tanking aggressively:
In a rush to appease regulators, lenders may well over-compensate and potentially leave the housing market to deteriorate further.
The Morrison government has also announced it will be cracking down on trail commissions, which may impact mortgage brokers.
Mortgage broker stocks could be hit by further share price carnage
Stocks like Australian Finance Group Limited [ASX:AFG] have been affected by the government’s proposed actions on the sector.
While markets have been pricing in the impact of the Royal Commission for some time, the scope of the recommendations regarding the mortgage sector was not anticipated.
In other news, ASIC has banned Commonwealth Bank of Australia’s[ASX:CBA] financial planning business, CFPL, from charging any fees or taking on new customers until ASIC’s concerns are addressed.
These stocks have traditionally been able to provide solid dividends, but the Royal Commission could hurt their margins.
As a result they may experience dividend cuts — AMP for example has already announced a significant cut in its dividend after its profits were slashed by 96%.
Whether the Big Four will follow suit remains to be seen, but there are indications this may happen, as they have already been introducing out-of-cycle variable rate hikes.
Bottom line, be prepared for greater volatility in the finance sector, and further pain in the housing market.
You may however take solace in the knowledge that some less scrupulous bankers may face court for their lack of conscience.
For Money Morning