The Australian Financial Review (extract)
Writers: Patrick Durkin and Marsha Jacobs
Financial planners and legal experts are sceptical about the corporate regulator's new investor awareness campaign that will classify financial products as being "between the flags" or "outside the flags", warning that it could mislead investors.
The campaign by the Australian Securities and Investments Commission will classify products such as bank deposits, superannuation, blue-chip shares, "plain vanilla" managed funds and other investments with low risks or with independent, professional advice to be within the flags. But more complex, illiquid undiversified investments or leveraged products, debentures and mortgage trusts will be deemed to be outside the flags. …
Financial Services partner at Mallesons Stephen Jaques Jim Boynton said that classifying products as safe or unsafe was problematic.
"There is a much broader debate building the suitability of products and it will be interesting to see whether any legislative changes result from those concerns.
"It is potentially misleading for the regulator to call something safe because that might imply that investors will receive all of their money back which as we have seen, may not always be the case," he said.
__________________________________________________________________________________
Top four Australian banks top world's ranking
The top Australian banks have moved from world minnows to majors in the space of just two years as the global recession has claimed the majority of the world's largest and once safest financial institutions.
There are now only eight AA-rated banks in the world, and the Australian domestic brand names of CBA, NAB, ANZ and Westpac account for half. Before the financial crisis engulfed the world there were 20 AA-banks.
The robust state of Australia's banking system has been applauded globally and used as a benchmark for regulatory reform. The question in financial market now is in what state will the banks emerge from the crisis?
The majors have strengthened their grip on the business and consumer market, as foreign banks exit Australia and the regional banks battle for survival.
In the deposits market, the top four have 69.8 per cent of household savings and 71.5 per cent of corporate holdings while in lending the majors account for 69.6 per cent of household loans, 71.4 per cent of personal lending and 66.7 per cent of business lending.
The future for the top four, post-crisis, seems to be the stronger getting stronger while the smaller fight to stay alive.
Goldman Sachs JBWere's banking analyst Ben Koo said that for regional banks the outlook was bleak, because of higher wholesale funding costs and their dependency on international financing markets that were not open for business.
"We believe that the major banks will strengthen their positions as a result of the global financial crisis. There is evidence of this already when you look at market share they have gained since the crisis began," Mr Koo said.
"Uncertainty remains around the long-term funding profiles of the regional banks. "Compared with the major banks, regional banks' funding is more expensive and they do not have the benefit of scale.
"The global financial crisis and sector consolidation has emphasised the structural differences between the regional and the big four banks. Many of these risks are already reflected in the regional banks' valuation discounts."
At Deutsche Bank, analyst James Freeman said the majors were best positioned to capitalise on the move of major foreign banks to reduce exposure and lending activities to Australian business.
"I think we will continue to see a reduction in foreign competition over the next three years as international banks refocus their efforts and capital base on their core markets," Mr Freeman said.
"Major banks will be well positioned to capture this change in market shares . "I think over the long term, investors can expect banks to deliver strong return on equity as the bad-debt cycle normalises and profits benefit from recent repricing initiatives."
On the regulatory front, there is now concern the banking industry could fall victim to the current global zeal, especially from the G20, of ramping up prudential supervision.
The "twin peaks" of regulation in Australia -- ASIC and APRA -- are considered by most in the industry as having adopted a cautious and conservative -- but ultimately the correct -- approach to banking supervision.
The G20 summits this year have agreed to implement a greater "macro-prudential" regulatory framework on the world's banks in response to the financial crisis that has infected most financial institutions.
There is a fresh push for banks to hold more capital on their books as a buffer for unexpected downturns and greater supervision between the Financial Stability Forum and the IMF.
Mallesons head of market regulation and managing partner Stuart Fuller said the strength and resilience of Australia's banks was the result of the intense level of supervision already under way in this market.
"I think in the regulatory environment, we are going to see more regulation but for what purpose," Mr Fuller said.
"We have a highly regulated banking market compared to that of the US banking market which is highly unregulated. You can see why the US, Europe and the UK are bringing in more regulation.
"Australia is coming from a highly regulated point. I think there is a risk of too much regulation, and there has been a degree of overlap."
Deloitte financial services partner Chris Cass said the federal government was keen to participate in global reforms and had also moved to instigate its own changes, particularly on the banks' role in consumer credit standards.
"The top four banks are extremely well placed to take advantage and withstand whatever remains of the global financial crisis and to pull out of the end of it in very good shape," Mr Cass said.
"In terms of regulatory change I think it's going to be more of a tweak. The Australian government is taking a strong leadership position in the G20. From my reading, the government is determined that Australia will play its part where it's appropriate."
__________________________________________________________________________________
"Stuart Fuller, a managing partner at Mallesons, yesterday nominated re-regulation of the financial sector as a key opportunity.
"Globally we'll see a raft of new legislation by groups such as the G20 and locally by regulatory bodies such as ASIC and APRA," Mr Fuller predicted. "It's also reasonable to assume that new global or regional regulators might be established."
Mr Fuller said the firm was working with clients on recapitalisation and refinancing options, "not just for the next 12 months but over a two- to three-year timeframe".