Banking royal commission has an impact in Hong Kong

Australian Financial ReviewMar 22 2018 11:00 PM

Chanticleer

The Hayne royal commission muscled its way into Asia's biggest investment conference in Hong Kong this week as global equity investors questioned the big four bank chief executives about the impact the inquiry will have on compliance and regulatory costs.

During an intense few days of meetings on the 47th floor of the Conrad Hotel in Hong Kong, ANZ's Shayne Elliott, CBA's Ian Narev and Matt Comyn, NAB's Andrew Thorburn and Westpac's Brian Hartzer were reminded of Kenneth Hayne's inquiry 7000 kilometres away in Melbourne.

Thorburn said the banking inquiry was one of a number of topics raised by investors during his meetings on Wednesday.

"They do ask about the royal commission and they ask about regulation and compliance and how is it going to play out and how demanding has it been and how much cost," he said in an exclusive interview.

"If you think of an investor with capital, capital is mobile, and they are saying: 'Ok, I like Australia, it has good fundamentals – the banks are good, they have good returns and APRA's 10.5 per cent CET1 has been closed out and that's a really big plus.'

"They are looking for reasons to invest in Australia because when you look around the world other places might have higher growth but they might have some higher risks too.

"I think they are trying to face into the question: 'Is there going to be continued regulation and compliance or will the royal commission maybe be the close?'

"I hope that is what it is."

Other bankers from the big four refused to talk on the record but Chanticleer understands they were also questioned about the possible impact of Hayne's inquiry on their costs.

It is believed ANZ told investors that it was too early to tell what the royal commission would mean in terms of the federal government's regulatory response and the likely impact on expenses.

Impact on profit

The bank CEOs were in strong demand from fund managers from Europe, Asia and North America who were attending the Credit Suisse Asia Investment conference.

The banks are seen as proxies for overall performance of the Australian economy and they comprise a very large proportion of the asset allocation for Asia-Pacific equity portfolios.

A typical Asia-Pacific fund would have about 30 per cent of its capital allocated to Australia and the big four banks make up about 25 per cent of that 30 per cent share.

Credit Suisse said the CEOs and chief financial officers from the big four had about 66 meetings with 130 different investor firms, according to data supplied by Credit Suisse.

One fund manager, who did not wish to be named, said there was a worry that the end of the Hayne inquiry would mark the start of a new phase of regulatory tightening that would impact bank profits.

Thorburn said he hoped the royal commission would be a circuit breaker.

"When we wrote to the Treasurer, we wrote off the back of being CEOs and chairs concerned about the increasing questions we were getting from offshore investors – remembering 25 per cent of our shareholding base is foreign and 30 per cent of the capital to fund the Australian economy is from offshore markets," he said.

"We said we need something to be circuit breaker and the government chose a royal commission, which we think is great.

"It is great that they have chosen a vehicle that allows public hearings with a good structure and a time frame that is very reasonable.

"So I think investors are thinking: 'OK is this the end? If it is that could be really good for Australia.'

"Now, sure we need to get on and fix all the things we said that we needed to fix and the things we have committed to and address the issues."

Thorburn refused to speculate on what sort of recommendations Hayne would make at the end of the year but he said he looked forward to having them handed to the government.

"I am sure there are going to be some recommendations that are going to be ones that the commissioner believes on balance will be right," he said.

"Then the government is going to have to decide do they accept them and then do they get them implemented.

"What I am saying is it's good that it's happening. We want to participate fully.

"There are things that have happened that I am totally, not just dismayed about but ashamed about as a banker. But I know that is not what the bank is.

"I know that those things happened but it is not representative of what our people are like and or the way we look after clients overwhelmingly but they are true, nevertheless.

"But I think we just need to get through, get it landed and start to look forward to the opportunities that Australia has because they are significant."

At one stage during the meetings in the Conrad Hotel on Wednesday, the four big banks and Macquarie Group were in adjacent meeting rooms on level 47.

That means institutions comprising about 27 per cent of the total market capitalisation of the Australian market were all sitting within 20 metres of each other in separate rooms.