Analysts revise banks’ remediation bill for customer rip-offs up to $5 billion

THE overall bill to pay back customers who have been ripped off by Aussie banks is closing in on $5 billion, a new analysis says.

THE overall bill to pay back customers who have been ripped off by Aussie banks is closing in on $5 billion, a new analysis says.

Investment bank Morgan Stanley says customer refunds and remediation costs, as well as associated penalties and fines, will cost the big four $4.83 billion for the three years ranging from the 2017-18 ­financial year to the close of the 2019-20 financial year.

The hit includes $2 billion this financial year and $875 million in 2019-20.

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The new analysis is four times higher for 2018-19 than Morgan Stanley had previously forecast.

Analyst Richard Wiles has also downgraded his earnings per share forecast across the sector by an average of 4 per cent this financial year and 1 per cent for 2019-20. “These revisions reflect higher customer refunds and remediation costs,” Mr Wiles said on Wednesday in a note to clients.

The respected analyst said he had to upgrade his own assessments of how much banks would have to splash out to compensate customers after a series of revelations by lenders over the past month.

Mr Wiles had previously said the banks would fork out $500 million this financial year for customers they had harmed.

“However, we now forecast $2 billion in financial year 2019 and $875 million in financial year 2020,” he said.

Westpac late last month said its full-year earnings would be reduced by $235 million for customer payments and related costs over poor ­behaviour such as charging customers for services not ­provided.

ANZ this week flagged an additional $374 million charge for customer compensation

Australian Banking Association chief executive Anna Bligh admits on Wednesday that the fee-for-no-service scandal is “much more widespread than people understood”. Picture: AAP

stemming from problems in its wealth management arm.

Westpac will deliver its full-year results in early November while ANZ will hand its down at the end of this month.

“(This) reporting season looks like the calm before the storm,” Mr Wiles said.

He nominated a weaker housing market, a final report from the competition watchdog’s Residential Mortgage Price Inquiry, the ongoing bank royal commission and a looming federal election as ­issues for lenders.

The warning came as Australian Banking Association chief Anna Bligh said the fee-for-no-service scandal was “much more widespread than people understood”. The ABA on Wednesday announced amendments to its Code of Practice to end fees for no service and get banks to refund any fees incorrectly levied.

“We know that the amount that customers will see refunded to them is likely to escalate beyond a billion dollars,” Ms Bligh said.

Separately on Wednesday, it was revealed the Commonwealth Bank and its wealth management arm Colonial First State have been hit by a class action lawsuit alleging uncompetitive superannuation returns.

The CBA also released Promontory Australasia’s first progress report into the bank’s reaction to the recommendations following the Australian Prudential Regulation Authority’s assertion that Australia’s largest bank was insular, complacent and blind to threats. The report said the bank’s size meant progress would be long and complex, but that “design and management of the program evidences a commitment to meeting the challenges described in the inquiry report”.

WITH AAP

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