Attempt to tally compensation hit to big banks clouded by bite-size chunks served up to market

Attempts to estimate the size of the big banks’ compensation bill are clouded by the bite-sized updates being fed to the market.

 

Kudos to Morgan Stanley for taking a stab at the major banks’ likely cost of customer refunds and remediation over the next few years.

On Tuesday, this column said you could do worse than pluck a number out of thin air and double it, such was the level of uncertainty.

Part of the problem is that the banks seem to be doling out the provisions in bite-sized chunks of hundreds of millions of dollars, figuring that a number in the billions could trigger a major bout of market indigestion.

Anyway, inspired by ANZ Bank’s disclosure on Monday of $374m in second-half charges for customer refunds and remediation, Morgan Stanley revisited an earlier forecast for sector-wide costs in the 2018-20 financial years.

Analyst Richard Wiles reckons total charges in 2018 will now come in at $1.96 billion, with Commonwealth Bank leading the table at $855m (thank you, Austrac), followed by ANZ ($534m), Westpac ($317m) and National Australia Bank ($250m).

It doesn’t get any better in 2019, with industry charges again around the $2bn mark.

This time around, Westpac and NAB will top the table at $525m, followed by CBA ($500m) and ANZ ($450m).

Thankfully the outlook improves in 2020, with only $875m in forecast charges.

By then, however, the crystal ball is looking decidedly cloudy.

The more scientific approach is to think of a very large number. Then double it.

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