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07-11-2014, 07:02 AM
Big four must pay levy for government guarantee: ME Bank chief McPhee
THE AUSTRALIAN NOVEMBER 07, 2014 12:00AM
Richard Gluyas
Business Correspondent
Melbourne
ME Bank CEO Jamie McPhee wants a level playing field for the smaller banks in the mortgage market. Picture: Aaron Francis Source: News Limited
ME Bank, which is majority-owned by four big industry superannuation funds, wants the major banks to pay an annual fee of up to $4 billion-$5bn for their implicit government guarantee as a way of resolving the too-big-to-fail conundrum.
Announcing a 28 per cent increase in 2014 net profit to $47.4 million, chief executive Jamie McPhee also launched a spirited defence of the industry funds movement, pointing out that listed financial services businesses had been hit by governance challenges, including Commonwealth Bank’s financial planning debacle.
“I’ve been around for five years and the integrity of the industry funds is of a high quality,” Mr McPhee said.
“It’s not to say there aren’t pockets of questionable activity but you’ll find that in the private sector as well, so there needs to be some balance and the inappropriate behaviour stopped.”
ME Bank has 30 industry-fund shareholders but the four biggest — AustralianSuper, HostPlus, Hesta and Cbus — own 80 per cent of the operation.
At the bank’s annual meeting and board meeting yesterday, the shareholders made their usual precommitments to inject an undisclosed amount of capital in October next year, with ME Bank already having raised $300m of tier-two capital in August.
ME Bank is aiming to achieve a “meaningful” size by 2020, growing customer numbers from 312,000 to 1 million. It also wants to increase annual home loan settlements from $3.8bn to $8bn in three years. In the meantime, Mr McPhee wants the Murray financial system inquiry to level the playing field for the smaller banks in the lucrative $1.3 trillion mortgage market.
With their advanced systems, the big four generate average risk weights for mortgages of 18 per cent, requiring them to put less than half the capital aside to write the same underlying mortgage as small banks, boosting returns.
“It’s nonsensical to say that one model requires twice the amount of capital than the other when we’re all lending in the same market,” the ME Bank chief said.
He said the advantage enjoyed by the major banks in lower funding costs should be addressed by the imposition of a levy in return for their implicit government guarantee. The guarantee was worth two credit-rating notches, enabling the majors to issue wholesale debt at much cheaper rates than smaller banks and credit unions.
“It’s a form of insurance, and the last time I looked I had to pay for that kind of underwriting,” Mr McPhee said. He said a fair assessment of the value of the guarantee was anywhere between $2bn a year to $5bn-$6bn.
While the market was competitive today, the ME Bank chief said the Murray inquiry was concerned with the shape of the financial services industry over the next 20 years. “The only winner is the consumer,” he said.
ME Bank has also been modernising its core banking system in a four-year project worth $70m due for completion early next year. The new platform will help to cut its cost-to-income ratio, which has been falling since June 2009 when the ratio was an uncomfortably high 84.5 per cent.
Since then, it’s declined to 71.1 per cent, but Mr McPhee said this was still “unacceptable”.
Growth will also be boosted by the bank’s recent decision to extend home loans to all borrowers, not just industry fund members and unionists.
THE AUSTRALIAN NOVEMBER 07, 2014 12:00AM
Richard Gluyas
Business Correspondent
Melbourne
ME Bank CEO Jamie McPhee wants a level playing field for the smaller banks in the mortgage market. Picture: Aaron Francis Source: News Limited
ME Bank, which is majority-owned by four big industry superannuation funds, wants the major banks to pay an annual fee of up to $4 billion-$5bn for their implicit government guarantee as a way of resolving the too-big-to-fail conundrum.
Announcing a 28 per cent increase in 2014 net profit to $47.4 million, chief executive Jamie McPhee also launched a spirited defence of the industry funds movement, pointing out that listed financial services businesses had been hit by governance challenges, including Commonwealth Bank’s financial planning debacle.
“I’ve been around for five years and the integrity of the industry funds is of a high quality,” Mr McPhee said.
“It’s not to say there aren’t pockets of questionable activity but you’ll find that in the private sector as well, so there needs to be some balance and the inappropriate behaviour stopped.”
ME Bank has 30 industry-fund shareholders but the four biggest — AustralianSuper, HostPlus, Hesta and Cbus — own 80 per cent of the operation.
At the bank’s annual meeting and board meeting yesterday, the shareholders made their usual precommitments to inject an undisclosed amount of capital in October next year, with ME Bank already having raised $300m of tier-two capital in August.
ME Bank is aiming to achieve a “meaningful” size by 2020, growing customer numbers from 312,000 to 1 million. It also wants to increase annual home loan settlements from $3.8bn to $8bn in three years. In the meantime, Mr McPhee wants the Murray financial system inquiry to level the playing field for the smaller banks in the lucrative $1.3 trillion mortgage market.
With their advanced systems, the big four generate average risk weights for mortgages of 18 per cent, requiring them to put less than half the capital aside to write the same underlying mortgage as small banks, boosting returns.
“It’s nonsensical to say that one model requires twice the amount of capital than the other when we’re all lending in the same market,” the ME Bank chief said.
He said the advantage enjoyed by the major banks in lower funding costs should be addressed by the imposition of a levy in return for their implicit government guarantee. The guarantee was worth two credit-rating notches, enabling the majors to issue wholesale debt at much cheaper rates than smaller banks and credit unions.
“It’s a form of insurance, and the last time I looked I had to pay for that kind of underwriting,” Mr McPhee said. He said a fair assessment of the value of the guarantee was anywhere between $2bn a year to $5bn-$6bn.
While the market was competitive today, the ME Bank chief said the Murray inquiry was concerned with the shape of the financial services industry over the next 20 years. “The only winner is the consumer,” he said.
ME Bank has also been modernising its core banking system in a four-year project worth $70m due for completion early next year. The new platform will help to cut its cost-to-income ratio, which has been falling since June 2009 when the ratio was an uncomfortably high 84.5 per cent.
Since then, it’s declined to 71.1 per cent, but Mr McPhee said this was still “unacceptable”.
Growth will also be boosted by the bank’s recent decision to extend home loans to all borrowers, not just industry fund members and unionists.