Hayne report: Final report not the nadir banks feared

Shares of the major banks and AMP are expected to rise when the sharemarket reopens this morning.

Nomura Australia rate strategist Andrew Ticehurst.

Shares of the major banks and AMP are expected to rise when the sharemarket reopens this morning amid relief that the final report of the royal commission wasn’t a worst-case scenario for the sector.

However, the listed mortgage brokers will be hit after it banned lender-paid commissions.

While investors appeared to pre-empt a “less bad” outcome yesterday by pushing the major banks up between 0.8 and 1.2 per cent after early falls, AMP shares hit a record low close of $2.21.

In what should be a relief for shareholders of the big banks and AMP, the royal commission didn’t make any recommendations for banks’ required capital and made no call for “structural separation”.

“In our view, many of the commissioner’s recommendations focused on conduct and consumer lending have already been pre-empted by the banks — including cultural and remuneration changes and already incurring higher compliance and remediation charges — or by the industry’s regulators, and we therefore don’t see significant negative impacts on the broader economy or on the banks’ own credit quality or external ratings,” said Michael Bush, head of credit research at NAB.

“Likewise, there should be no material impact on the banks’ funding spreads.”

He said Treasurer Josh Frydenberg had made it clear that he didn’t see the commissioner’s recommendations resulting in any reduction in the availability of credit.

“This has currently been a key point in contention in the economics community, with a number of more bearish analysts on the housing market arguing that the royal commission would unleash a significant further tightening in lending standards,” he said.

Nomura Australia rate strategist Andrew Ticehurst also said the report was “less aggressive than it could have been” and was “unlikely to further impact bank lending attitudes”.

Bell Direct equity analyst Julia Lee described elements in the ­report as a “mild positive” for the banks, saying that the phasing-out of commissions to mortgage brokers and a five-year review on ­vertical integration wasn’t likely to have a significant effect on the share prices of the major banks.

“For the time being, it looks like the major changes will be on the advice industry and the way it charges fees as well as mortgage brokers,” she told The Australian.

Tribeca portfolio manager Jun Bei Liu said called the recommendations “reasonably benign” for the banks, saying they were pretty much as expected.

Listed mortgage brokers including Mortgage Choice and Australian Finance Group are likely to come under pressure after the commission banned lender-paid commissions.

“Many of the most significant changes have been directed ­towards the mortgage broking sector, with the commissioner recommending the banning of lender-paid commissions, replacing them with borrower paid fees,” said NAB’s Mr Bush.

“While this will likely affect that channel for home lending and increase the transparency of the fees paid, there does not appear to have been a significant further tightening of lending standards, over and above the significant tightening in standards that has already occurred over recent years.”