Kenneth Hayne’s final report ‘more bark than bite’, banking stocks soar

The inquiry into the banks highlighted damning treatment of customers by financial services companies but the response on the share market doesn’t reflect this.

Despite the banking royal commission’s final report being spruiked as a scathing indictment of the industry, shares in the major banks soared.

The big four lenders rose as much as 6.6 per cent by lunch after Commissioner Kenneth Hayne QC’s report didn’t recommend major structural changes to how the businesses are run, market analysts say.

By midday, ANZ was up 6.1 per cent, Commonwealth Bank added 4.7 per cent and Westpac climbed 6.6 per cent.

NAB rose 4.7 per cent after chief executive Andrew Thorburn said on Tuesday morning he had cancelled the remainder of his two months’ leave and added he was “more determined than ever” to lead the bank’s response to Kenneth Hayne’s report.

Bell Direct equities analyst Julia Lee said “a lot of it seemed to be a lot more bark than bite,” particularly related to the structure and vertical integration of the businesses.

“One of the biggest threats from the final report was there could have been separation between products and advice, which is why the big four banks had been moving towards separation of the core businesses and the asset management businesses,” she told news.com.au.

“And now it appears they’ll no longer be forced to do so.”

Some of the more damning evidence given during the royal commission had been against financial services companies IOOF Holdings and AMP, but the two appear to be spared of having to enforce significant structural changes.

.@NAB CEO @AndrewThorburn: You have a life outside the company and I don't think it's unreasonable to take extended leave. I have a family I want to spend time with and it's important for my mental and physical wellbeing.

MORE: https://t.co/V6jcp1iKj2 #SkyLiveNow pic.twitter.com/U8Yaw8azp5

— Sky News Australia (@SkyNewsAust) February 5, 2019

Shares in IOOF, one of the fund managers that could be open to possible criminal or civil proceedings after it featured in the report, jumped 12.9 per cent.

AMP, which has lost more than half its market value since its serious misconduct was made public at the royal commission, was up 9.5 per cent.

“The reason why we’re seeing IOOF and AMP rallying is they’re not going to be forced to hive off any divisions or assets, which is what the market had been pricing in,” Ms Lee said.

Pepperstone head of research Chris Weston said the market reaction clearly reflected relief from banks and investors.

“It’s a good day for anyone who has got banks in their portfolio,” he told news.com.au. “On the whole, people had gone into this expecting far worse.”

Ms Lee expected the major banks’ share price to steady in the short term, while Mr Weston said the sector’s attention will now turn to how it responds to its self-imposed restriction on home loan lending.

“(The sector) is out of the woodwork and now we know how the landscape lies,” he said.

“It’s back to watching what’s happening in the housing market, what the demand for credit is and ultimately how these guys are going to continue to meet earnings expectations to the market.”

Mortgage brokers, however, weren’t spared on the ASX after Commissioner Hayne recommended cutting trail commissions.

Commissioner Kenneth Hayne was ice cold with Treasurer Josh Frydenberg before the report was released.

From mid-next year, banks will be banned from paying mortgage brokers so-called “trail commissions” — described witheringly by Commissioner Kenneth Hayne QC as “money for nothing” — on new loans.

Trail commissions are ongoing payments made by the bank to the broker for the entire life of the loan. The bigger the loan, the bigger the trail commissions paid, meaning often brokers aren’t acting in the best interest of the customer.

“Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?” Mr Hayne said in his report.

Mortgage Choice is down more than 24 per cent and Australian Finance Group has lost more than 28 per cent.

With AAP

Continue the conversation on Twitter @newscomauHQ | @James_P_Hall or [e-mail]