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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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BFCSA: Banks may face UK-style claims as costs tipped to hit $6bn

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Banks may face UK-style claims as costs tipped to hit $6bn

Australian Financial Review Mar 31, 2019 11.00pm

Jonathan Shapiro, James Eyers

 

The costs to the major banks of remediating misconduct could top $6 billion by the end of next year, as analysts and former banking executives warn the torrid experience of shareholders in the United Kingdom offers a guide of what lies ahead.

JPMorgan analysts Andrew Triggs and Nicholas Dalton last week increased their estimates for remediation costs by $125 million for ANZ and Commonwealth Bank and $300 million for National Australia Bank, after Westpac said compensation costs would wipe $260 million off its half-year profit.

The analysts said the revisions would shave between 1 per cent and 3 per cent off the full-year net profits of ANZ, CBA and NAB, as they increased their forecast for total remediation provisions across the big four banks by $500 billion to $1.85 billion.

“The royal commission fallout suggests banks will prioritise these programs,” the JPMorgan analysts wrote, pointing to NAB acting chief executive Phil Chronican’s comments that the bank will have 500 people deployed to deal with remediation.

Meanwhile, Deutsche Bank analysts cut their cash profit forecasts for ANZ, CBA and NAB by between 5 per cent and 6 per cent, while cutting their forecast for NAB’s dividend per share by almost 24 per cent.

Deutsche Bank tallied up the total remediation costs announced by the big four banks as $2.7 billion, but they forecast an additional $1 billion of additional costs for the 2019 financial year and $2.4 billion of costs in 2020, taking their total estimate to more than $6 billion.

They expect Westpac to incur the highest costs, at $1.8 billion, and National Australia Bank to incur the least, at $1.2 billion over the four-year period.

The analysts said that while much of the risks relate to wealth management revealed by the royal commission, there was an “increasing risk that further misconduct could be uncovered in other areas of banking''.

They identified responsible lending as a key risk and said they "were puzzled by bank CEOs who appear to hide behind legalese with respect to responsible lending. It shows the industry is still grappling with many challenges and have not yet embraced the customer.”

In recent weeks banks and the regulator have locked horns over the issue of responsible lending.

At the Australian Financial Review Banking & Wealth summit, regulators dismissed claims that the flow of credit into the economy was being crimped by a crackdown on responsible lending.

"They've been in force for a decade and they are nothing new," Australian Securities and Investments Commission chair James Shipton told attendees at the summit.

"It's extraordinary that I am up here today saying something as simple as 'obey the law'," Mr Shipton said.

That was after senior bankers such as Westpac's David Lindberg blamed the issue for a slow-down in lending to small businesses. ANZ Banking Group chief executive Shayne Elliott also told politicians last week it was becoming harder to borrow.

Deutsche analysts seem to be siding with the regulator and argued that banks had deviated from an old rule of thumb to not loan a borrower more than four times their income.

“Whilst a sharp lawyer may persuasively advocate for most loans to be compliant under the National Consumer Credit Protection Act, is it ultimately prudent banking practice and is it in the best interests of the borrower?”

“We think that going forward mortgages will be smaller and take much longer to process.

“Consequently, earnings may be capital intensive and hence dividend pay-out ratios are resultingly too high.”

As analysts revise their expected remediation costs up, and the forecast bank profits down, more voices are warning that the experience of the UK banks is foreshadowing a prolonged period of pain for bank shareholders.

Volt Bank CEO Steve Weston spent four years at Barclays in the UK (from April 2012 to December 2015) when that market was going though a very similar period as Australia now, including scrutiny on banks and new regulation being put onto their wealth operations.

"We are in exactly the same movie as the UK banking sector was probably five years [earlier]," he told the summit.

"The issues [in Australia] are the same as we suffered through in the UK, albeit with different names – Libor may be BBSW.

"The reaction of all actors was the same. Banks initially said there is nothing to see here. But when we found a few little issues, they said sorry for those, they are not reflective of the culture, we didn't need a royal commission – until they did."

Mr Weston said the next issue Australian banks will grapple with is the Banking Executive Accountability Regime, modelled on the UK regime which makes senior managers "responsible for identifying risks and fixing issues for the first time".

"One day you will wake up to a nightmare, where the issues will continually be found. They are sins of the past that need to be fixed up and you need to put controls in place to stop them happening again.

"That's another three years, unfortunately. The good news is once you go through that cleaning process, you come out the other end as an industry."

Deutsche Bank analysts drew a comparison to the UK which they said has "been a useful source of policy insight” for Australia.

Australian policymakers have adopted several measures first implemented in the UK relating to open banking, competition and senior management accountability and pointed to the experience of UK banks in dealing with misconduct as a precursor for what may lie ahead.

They wrote that a UK bank executive warned them four years ago that while British banking was “approaching the end of its conduct/regulatory tunnel but that Australia was about to enter one”.

British banks have paid almost £40 billion of fines relating to the mis-selling of payments protection insurance. The provisions set aside by the banks of £42 billion could have paid for the London Olympics, which cost £8.8 billion, five times over.

But another lesson from the UK is that customers may also suffer as a result.

Mr Weston said "the pendulum can swing too far'', and said there were now no financial planners in UK bank branches as a result of the tougher regulation.

"People are now going away unadvised and in a generation’s time, the UK government will feel the result of that.

 

"They will have to fund people into retirement that they may not have to otherwise had they been advised along the way. "

 

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