The market voted yesterday on the impact of the Murray inquiry on the Big 4 and the verdict, which saw an average rise of around 1% in the prices of CBA, Westpac, NAB and ANZ, was plainly that the proposed measures won’t hurt.
It’s a verdict shared by the big three credit rating agencies who all appear to be saying that Australia’s major banks can handle any impact without too much trouble, although ratings may be effected in time.
Here is the NAB credit team’s wrap of what they said.
S&P, Moody’s and Fitch each comment on the implications of the Financial System Inquiry (FSI) for Australian banks.
All conclude that there is no immediate impact on Australian financial institutions following the FSI report release on Sunday. However future rating changes cannot be ruled out for 2015 (S&P).
S&P stated that the higher core equity and supplemental capital is likely to have a strengthening effect but that it will await ultimate clarity on the matter of senior creditor bail-in, which is unlikely to occur until next year. As we noted yesterday, the report favours contractual bail-in of debt junior to senior unsecured notes rather than this class and via legislative/statutory bail-in, which other countries have chosen.
Moody’s additionally mention that despite all the positives, the negative effects on bank profitability created by higher capital requirements is likely to muted given the major banks strong earnings and pricing power. As we mentioned Moody’s also highlight that the two-notch uplift for senior unsecured creditors will be under pressure from the bail-in implications, but that the exact resolution mechanism is still to be determined.
Fitch also conclude that the FSI report’s recommendations should strengthen the banking system if implemented. On bail-in, the agency believe that Australia will wait and see how international developments track before making any final requirements. This is a sensible approach and one that the government will likely take.
Next steps for the FSI recommendations are for a further round of consultations as announced by the government, which should conclude by 31 March 2015. Following this should be decisions on the exact implementations to take and by whom (mostly APRA).