Bank executives say levy will hit ordinary Australians

Chief Ian Narev joins Westpac’s Brian Hartzer, says $6.2bn bank levy to hit savers and investors.

CBA chief Ian Narev.

Commonwealth Bank chief Ian Narev joins a chorus of bank executives warning the government’s new bank levy will be bourne by ordinary Australians.

“As every business owner or employee knows, every extra cost needs to be borne by customers or shareholders, or a combination of both,” said Mr Narev.

In a statement this afternoon, he added there was a lack of consultation by the government in the lead up to the announcement and sparse detail following the release.

“We look forward to Treasury outlining how this tax will apply in practice.”

Westpac chief executive Brian Hartzer has also come out to chide the new levy, warning the government’s new bank levy is a hit on the savings of millions of Australians and all bank customers.

“Yesterday, $14 billion of value was wiped off Australian bank shares because of speculation around this new tax,” said Mr Hartzer this afternoon.

“There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.”

In a scathing response, National Australia Bank chief executive Andrew Thorburn has said the tax “cannot be absorbed” and rather will be borne by NAB’s customers, shareholders, suppliers and employees.

“It is not just a tax on a bank. It is a tax on every Australian who benefits from, and is part of, our industry.” Mr Thorburn said.

ANZ commented shortly after with a release stating “at this stage it is too early to provide a definitive estimate of the financial impact on ANZ.”

The only investment bank under the umbrella, Macquarie said in a statement it needed further details to clarify the impact the proposed bank tax will have on its business.

Macquarie’s retail banking business, however, has been growing lately, with a mortgage portfolio worth $28.7 billion, $44.5 billion worth of retail and business deposits of $72. 2 billion of funds under management.

“At this stage, the impact on Macquarie is unclear,” it said in an announcement to the ASX.

“It is uncertain whether the proposed levy will apply to Macquarie Bank Limited’s statutory liabilities, funded balance sheet or whether liabilities relating to foreign businesses or subsidiaries will be also be included.”

This comes following the announcement of an extraordinary new bank levy in the Federal government’s budget last night, tremors from an inquiry into the industry and concerns over home lending practices.

In addition to new measures slapped on lenders by APRA earlier in the year, the most recent move by the government has put the bottom lines of the big five banks’ in the spotlight.

“The banks can do more to help budget repair,” said Treasurer Scott Morrison last night in Canberra upon revealing the details.

A significant weight in the local market, analysts had a sleepless night after murmurs of the levy surfaced yesterday and dragged major bank stocks down between 2-3 per cent by the close.

“Most of these should have a negative impact upon profitability and the competitive position of the 5 largest banks,” said Deustche Bank analyst Andrew Triggs.

“Our first estimate of the bank levy impact is a ~3 per cent — 6 per cent reduction in cash earnings of the impacted banks, assuming no tax deductibility of the levy.

However, news of the levy on commercial lenders last night ignited public concern the tax would ultimately be passed on to customers. Morgan Stanley analysts noting while they see an opportunity here for banks, it will be a tough ask to sidestep mounting pressure from Canberra.

“In our view, they will try to offset the impact of the levy via lower rates on deposits and/or higher rates on mortgages,” say equity analysts led by Richard E Wiles

“However, the Government has also announced that the ACCC will undertake a residential mortgage pricing inquiry until 30 June 2018, and will require banks “to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates.”

In addition, as The Australian’s Michael Roddan writes this morning, the financial sector will cover much of the cost of expanding ARPA powers, including an executive registrar to intervene directly in remuneration should bad behaviour arise.

Macquarie this morning downgraded its rating of the Australian banking sector to “neutral” from “overweight”, cutting CBA and NAB shares to “underperform” and Wesptac to “neutral”.

“Based on the Treasury estimates this levy will raise ~$1.6bn (net of tax), which we estimate will takeoff 4-5 per cent of the majors’ earnings,” the investment bank said.