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Drain the swamp: PM orders royal commission into banks & financial services

Tom Richardson
big four banks 16:9

This morning the prime minister announced that the government will form a parliamentary royal commission to investigate the conduct and culture of the banking and financial services industry.

The banks themselves including National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have already started the public relations battle ahead by releasing a letter claiming they want the inquiry in support of the “national interest”.

Political pressure has mounted for an inquiry after a series of scandals around the banks’ conduct including AUSTRAC’s allegations over anti-money laundering reporting failures against the CBA and allegations that the banks attempted to manipulate the bank bill swap rate (BBSW) as a key lending rate.

As yet no terms of reference have been released for the inquiry, although it is being reported it could be extended to the wider financial services sector, which means the likes of AMP Limited (ASX: AMP) or Macquarie Group Ltd (ASX: MQG) could also be hauled over the coals.

Many Australians will count themselves among big bank shareholders and the main question for them is what the potential costs will be as a result of the demands or conclusions of the inquiry.

Given the big 4 banks made profits of around $15 billion between them over the most recent half-year reporting period any costs are likely to be immaterial in the context of their bottom line profits.

In other words dividends are unlikely to be affected, although it’s not impossible given the political points scoring nature of the inquiry.

It’s no surprise that the worst performing of the big 4 banks this morning is CBA with its shares off 2.3% to $79.14 as it is under the most pressure in the light of, inter alia, the AUSTRAC allegations and evidence that its insurance division denied payouts to legitimate claimants.

Over the medium-term though the banks face multiple other risks including Sydney’s falling property market and weaker-than-expected consumer wage growth.

The banks are dragging the wider S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) 0.7% lower today as the market digests the news.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.