The Murray Inquiry looks like it has really upset the majors by claiming that their capital levels are “around the middle of the range relative to other countries”.
Phil Coffey, Westpac’s CFO, has echoed concerns from the Australian Bankers Association that the numbers Murray used were wrong.
It is a high stakes game because if Murray prevails and the banks are forced to raise more capital it will mean that their profitability may suffer and their ability to leverage their balance sheet will also be restricted.
The Australian reports that the ABA has commissioned a report from PWC for its submission to the second round of the Murray Inquiry. PWC asserts that the capital ratio of the majors is not the 10% Murray used but actually “in the range of 11.5 per cent to 12.5 per cent”. This would move the majors from the “middle”, as Murray noted, to a level “at or above the 75th percentile of bank capital relative to the most appropriate comparator set of global banks.”
Coffey reasserted the majors’ view that they don’t need to raise any extra capital, saying:
“We think we should be strongly capitalised, and we are when you look at the highest-quality level of capital. On the basis we are already in the upper quartile of global peers, there doesn’t seem to be a pressing requirement to add in more of that form of capital.”
It’s a vexed question made more difficult by the differing approach of regulators in different jurisdictions. Clearly bank managers are worried, which perhaps is the clearest sign that Murray might be onto something.
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