Banks stocks tumble over dodgy advice compo fears

The big four banks have been hammered on the back of the skyrocketing compensation bill for dodgy ­advice.

The big four banks have been pummelled by investors on the back of rising compensation bills for dodgy financial ­advice and the rampant charging of fees where no service had been provided.

ANZ yesterday became the latest major financial institution to make a surprise profit warning after compiling its full-year financial accounts and signing off on the growing remediation bill.

The bank, Australia’s third largest, revealed a $374 million blowout in its expected compensation over its fees-for-no-service scandal. The admission followed Westpac’s own $235m impairment for refunds for overcharged customers, which the lender revealed late last month.

AMP in late July warned it was expecting to have to repay close to $300m to victims of poor financial advice.

Analysts are expecting more bad news on the horizon. The Australian Securities & Investments Commission has said the likely damage wrought by the fees-for-no-service scandal across the industry could top $1 billion in refunds, while lenders are vulnerable to further compensation over breaching responsible-lending laws and wrongly sold mortgages.

The major bank chief executives are bracing for a bruising ­series of hearings in front of the House of Representatives economics committee at Parliament House, the first appearance for the bank bosses since the start of the royal commission. Commonwealth Bank and Westpac are scheduled to face the committee’s chairman, Liberal MP Tim Wilson, and other MPs on Thursday. ANZ is due to appear on Friday, while NAB will face questioning the following Friday.

Mr Wilson has warned he will be interested in banker bonuses, noting that royal commissioner Kenneth Hayne found incentives in the banks triggered the “appalling conduct contrary to law”.

“This misconduct has either gone unpunished, or the consequences have not met the seriousness of what has occurred and must be addressed,” he said.

CBA earlier this year had to account for a $700m penalty to its breaches of anti-money-laundering legislation, along with more than $200m on compliance and regulatory provisions. The bank has already paid close to $100m for its poor financial advice.

NAB, which reports on the same financial calendar as Westpac and ANZ, is also currently signing off on its financial accounts. In late July, NAB was forced to promise to refund $87m to more than 300,000 customers who were charged hundreds of dollars for the service fee after the corporate regulator raised concerns that members were not told they could opt out of the fee.

NAB was questioned at the royal commission over its “adviser commission fee”, which sucked up as much as 6 per cent of a saver’s super contributions but was also subject to unclear definitions.

The renewed focus on the banks’ liability for poor services sparked a sharp sell-off in financial stocks yesterday, prompting the sharemarket to book its biggest one-day fall in six months.

“We doubt these will be the last charges ANZ takes,” UBS analyst Jonathan Mott said.

ANZ shares tumbled nearly 3 per cent on the news, leaving the stock at its lowest price since June.

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CBA fell 1 per cent, while NAB lost 1.2 per cent. Westpac closed 1.3 per cent lower.

“As has been seen both in Australia and overseas, customer compensation is very difficult to estimate and costs have a tendency to escalate over time,” Mr Mott said. “Further, we believe the Australian banks potentially face substantial risk from responsible lending and mortgage mis-selling, with risks rising the further the housing market deteriorates.”

ANZ said it was expecting its bill from Kenneth Hayne’s royal commission to reach $55m. The bank also flagged impairments for restructuring and the amortisation of software, and said it would book charges of $739m in the second half of its financial year.

There is concern Australia’s biggest banks may no longer be capitalised as strongly as desired. A Standard & Poor’s ranking of global banks recently showed that Australian lenders had suffered declines in risk-adjusted capital that were among the “steepest” relative to other major banks.

ANZ’s new compensation bill represents an $185m increase on the estimated impact made at the end of last financial year, to a new total of just under $300m.

The financial sector is preparing to be inundated with class action claims following a series of damaging revelations at the royal commission. AMP was served with five separate class actions after it admitted charging customers fees where no service was given. The separate cases are expected to be wrapped into a single lawsuit. NAB and its wealth management business MLC face a class action on behalf of customers sold “worthless” credit card insurance.

Law firm Maurice Blackburn is setting itself up for a string of lawsuits against banks, having flagged probes into interest-only lending, mortgage fraud and irresponsible lending based on problematic household income benchmarks.

Slater & Gordon has launched a campaign targeting super funds it said had “gouged” the retirement savings of customers.