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The lines are drawn: Let the big bank battle begin

Former Commonwealth Bank boss turned bankbuster David Murray. Photo: Dominic Lorrimer Former Commonwealth Bank boss turned bankbuster David Murray. Photo: Dominic Lorrimer
If you thought the release of David Murray's financial system inquiry was exciting, then you ain't seen nothing yet – get ready for some of the biggest lobbying battles in years.

In the blue corner is the financial services sector, which sees itself not only as the grease that keeps the economy turning, but the big wheel itself.

In the red corner is one of their own, the former Commonwealth Bank chief executive David Murray. A man who has never met a speech he wouldn't give and who always speaks his mind.

And sandwiched in the middle? A government with bigger things on its mind, regulators with their own agendas and problems, and consumers who, as the Murray report makes clear, deserve better.

Five key lobbying battlegrounds are likely to emerge in the coming days, months and perhaps even years, given the transition periods usually allowed for big changes in the financial services sector:

1. Bank capital

David Murray made it clear from day one of his inquiry that he felt the banks needed to hold more capital to make them safe, even in the event of a catastrophic financial crisis. The banks countered, with ANZ chief Mike Smith warning that being forced to hold more capital could crimp dividend payouts, and Westpac's Gail Kelly arguing that it could force up interest rates on loans.

Murray hit back at those claims on Sunday as he delivered his report, claiming the banks had greatly exaggerated the potential impact of a higher capital imposition.

Treasurer Joe Hockey also warned the banks against a lobbying campaign.

But that is unlikely to stop it. The banks will lobby through their own teams, through the Australian Bankers Association and, as we saw on Sunday, through the Business Council of Australia.

They may be circumspect about making further claims about rising interest rates and dividends, but the banks believe Murray is forcing them to take insurance against an event that is incredibly unlikely to happen.

For his part, Murray is unlikely to give up this idea without his own lobbying.

Likely outcome: The banks won't win this one. Joe Hockey won't want to be seen as giving them an easy out, and he can effectively hand the decision to the Australian Prudential Regulatory Authority to limit any blowback. The deadline for the banks to raise the capital may become a secondary battle.

2. Super fees

Murray has made no secret of the fact that he sees the superannuation sector as a giant fee gouging machine, preying on a public that struggles to engage with a product that doesn't affect them until the end of their careers.

And shock horror, the low-cost super option the sector was supposed to introduce, called MySuper, doesn't appear to be working, perhaps due to the limited enthusiasm super funds have for the product.

Murray wants the government to give the sector until 2020 to cut fees and charges, or face competitive tenders for the right to manage workers' retirement savings. That could go one of two ways – either the super sector gets its act together, or they spend the best part of six years lobbying against any changes.

Likely outcome: Super fees in Australia are simply too high and as the population ages so too will the public's level of engagement on this matter. The super sector must get more competitive and it is likely to be forced down that path, like it or not.

3. Industry super funds

Murray's report made it clear that he decries what he sees as the politicisation of superannuation, and nowhere is that more prevalent than in the role of industry super funds.

Sure, they may be cheaper and produce better returns than their retail rivals (yes, we know, those points are debatable) but Murray sees industry funds as being too concerned about ensuring their union influence remains strong, and, potentially, not worried enough about returns and accountability.

To this end, he wants the government to mandate that the majority of members of a super fund's board be independent, including its chairman.

The union movement, already facing a Royal Commission, is unlikely to take this lying down, and will claim this apparent attack against the politicisation of super is, in fact, a politically motivated attack against funds that deliver superior performance.

Murray will counter with the idea that given employees now have great choice in which fund they want to go into (except where it's mandated by enterprise agreements, something else he wants to get rid of) the need for representation for a specific industry or group of workers on a super fund's board is less than it was.

Likely outcome: The Coalition won't hesitate to pull the trigger on this one. The industry funds' best bet is to hope the Abbott government gets rolled before this change can be made.

4. Borrowing in self-managed super funds

When we're not blaming foreigners for the property market starting to look overheated, we're blaming yield-chasing investors for driving up house prices. David Murray agrees and has recommended that the government ban limited recourse borrowing for property and shares through superannuation funds – or more specifically, self-managed super funds (SMSFs).

What Murray doesn't like is the idea that the SMSF sector could become overleveraged, exposing both the economy – the housing market, for example – and retirement savings in the event of a crash.

Not only does the SMSF lose, but so do taxpayers who could, for example, be hit with the double whammy of falling house prices and having to pay pensions to SMSF trustees who get in trouble.

The SMSF Professionals Association was basking in the glow of Murray's overall assessment of DIY funds last night, but did argue there was "scant abuse" of borrowing arrangements to date.

Expect the property sector to come out swinging on this one in the coming days.

Likely outcome: Very hard to call. Does the government really want to risk irritating the growing SMSF army? Would a cooler housing market make this issue go away? Joe Hockey may buy some time and hope for the best.

5. Regulators

David Murray has made it clear that key regulators, particularly the Australian Investments and Securities Commission, are underfunded, understaffed and under the pump in terms of proactively limiting the damage from disasters such as Storm Financial, Timbercorp, Trio and the Commonwealth Bank financial planning scandal.

No doubt the many victims of these scandals would agree.

But while Murray wants the government to increase funding to ASIC and lock it in for three years to give the agency stability, the government this year slashed $120 million from the regulator's budget – something ASIC chair Greg Medcraft has complained long and loudly about.

Reading the Murray report, it is clear that he wants ASIC to play an even bigger role in safeguarding the financial system, including potentially giving the ASIC a role in regulating competition in the sector.

But it's not easy to do more with less.

Likely outcome: Given the state of the budget, it's hard to see Joe Hockey reversing his cuts and giving ASIC more cash on top quickly. But Greg Medcraft now has extra ammunition to push for a better deal.

Author : James Thomson
Source: The Sydney Morning Herald

 

Last modified onTuesday, 09 December 2014 03:29

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