Big four banks emerge looking like winners

Sir Ralph Norris (L) described the reforms as well considered at the Senate hearing, while Westpac's chief has said the package is a good one. Photo / Bloomberg

Often criticised for not fronting up to the public, Australia's bank bosses have been almost inescapable in one of the industry's biggest weeks in recent memory.

Bashed by Canberra, the media and customers, senior executives of the big four banks got a chance to retaliate.

Three of the four chief executives - NAB's Cameron Clyne, Commonwealth's Sir Ralph Norris and ANZ's Mike Smith - fronted a Senate committee inquiry into banking competition.

In the same week, Westpac, NAB and ANZ held their annual meetings.

The glut of public appearances by bank executives followed the release last Sunday of Treasurer Wayne Swan's long-awaited proposed reforms for the sector.

The proposals aim to strengthen smaller lenders, credit unions and building societies to compete with a big four repeatedly labelled greedy.

The scene was set for a fiery exchange, but it didn't eventuate. Not as many would have thought, anyway.

Clyne, Norris and Smith took a measured approach in their appearances before the Senate committee.

They broadly welcomed Swan's reforms, and spoke clearly and simply about their rising funding costs and fierce competition for deposits.

Norris, a New Zealander, described the reforms as "well considered", while Clyne said his bank was already complying with most of the proposals.

Smith described competition among the big four as "quite brutal", and even Reserve Bank Governor Glenn Stevens told the inquiry the financial industry was more competitive than it was in the mid-1990s, with borrowers now able to choose from a larger range of products.

Westpac, which will appear before the Senate inquiry in the new year, took a similar approach when its shareholders sought a response at its annual meeting.

"I believe, as these things go, that was a good package," Westpac chairman Ted Evans said. "Of course we don't like all of it, but some elements are very good for the industry."

By the end of the week, there appeared to be a clear consensus - the big four have nothing to worry about.

Despite the Treasurer's strong public stance, analysts, investors, and even some of the smaller industry players have said the big banks may be the winners out of it all.

"Elements of the reform will actually be welcomed by the big four," Fat Prophets analyst Colin Whitehead said. "The broader attempts to level the playing field for the smaller lenders are unlikely to cause much of a shift at all."

Some reforms - the introduction of covered bonds, another contribution to the mortgage-backed securities market and making the deposit guarantee permanent - are seen as positives for smaller financial institutions.

But they will also benefit the majors. "The package contained plenty of headline claims and proposed initiatives," Commonwealth Bank analysts said. "Yet we do not believe the overall impact will be that material in terms of competitive pressure for the majors, with the proposal excluding some of the more significant potential reforms."

The abolition of mortgage exit fees is another move predicted to prove more of a problem for smaller players.

ANZ and NAB have already scrapped them, and smaller institutions often carry the highest exit fees across the industry.

Southern Cross Equities' head of dealing, Charlie Aitken, says the reforms will improve the investment case for the big four banks.

He says the proposals are akin to "slapping them over the wrist with an undersized fish".

"The failure of the Treasurer to level the cost of the Government guarantee on wholesale funding has further enhanced the competitive position of the big four banks," he said.

Investors agreed, with the share price of regional banks suffering while several of the majors rose.

The day after the reforms were unveiled, shares in Bank of Queensland and Bendigo and Adelaide Bank fell by more than 3 per cent, while the big four all rose more than 1 per cent.

For the week, Westpac was the best performer, adding 2.8 per cent to A$23.19, while Commonwealth added 0.2 per cent to A$50.70.

NAB lost 0.29 per cent to A$24.15 and ANZ lost 1 per cent to A$23.59.

Bank Of Queensland lost 6 per cent and Bendigo and Adelaide Bank dropped 2.6 per cent.

The reaction to the reforms from the smaller banks may have added to the negative investor sentiment.

Bank of Queensland chief executive David Liddy said the measures would put the cause for a fifth pillar in the banking sector back 15 years.

Bendigo and Adelaide managing director Mike Hirst warned a focus on the price of mortgages, exit fees and other products would only lessen competition.

Another of the industry's smaller players, Aussie Home Loans executive chairman John Symond, sparked the Senate inquiry's most heated exchange when he made known his displeasure with the bank reforms.

"To suggest the mutuals can become the fifth force in banking, quite frankly, is a joke," he said.

The A$4 billion Government pledge to buy more residential mortgage-backed securities, in addition to the A$16 billion spent since 2008, was "chicken feed", Symond said.

That earned a stiff rebuke from Swan, who highlighted Commonwealth Bank's interest in Aussie Home Loans.

"Mr Symond has clearly joined up with the biggest bank in the country. He's not clearly a smaller lender and he's not out there putting the case for the battler," the Treasurer said.

Then on Thursday, NAB chairman Michael Chaney launched one of the most spirited defences yet, calling bank bashing "unjustified and unfair".

"The fact is that the fundamental premise upon which bank bashing is based - that Australia's banking sector is insufficiently competitive, and that it is less competitive than before the GFC - is false," Chaney said.

But by then, after days of talk and explanation, the heat had left the debate. His comments would have once caused a storm, but instead rated barely a mention.

What could have been a tough week for the big banks turned out to be almost the opposite. Time will tell whether the good times last.

- AAP