Class action warning for banks

THE big banks could be hit with class action law suits if the banking royal commission finds evidence of misselling in Australia’s “mortgage mega-industry”, an industry expert says.

Leading analyst Jonathan Mott says the commission’s initial focus on consumer lending practices — and the potential for mortgage misselling — is highly significant.

Mr Mott, from investment bank UBS, has cut his target price for shares in all four major banks to reflect his concerns.

In a report for investors yesterday, he said there was “mounting evidence of misselling in the $1.7 trillion mortgage mega-industry”.

The focus on lending practices was “a logical starting point for the royal commission”, Mr Mott said.

“We believe that if the royal commission finds the banks have not lent responsibly, this could potentially open the banks up to class actions which may have material consequences,” he said.

Misselling is the term used in the finance industry when consumers are sold products or services that are unsuitable for them.

Mr Mott said investors had become complacent about such risks in the Australian finance sector after 73 investigations into the industry since the financial crisis last decade.

But share prices could suffer if the royal commission uncovered serious problems, Mr Mott said.

At the launch of the royal commission last week, Rowena Orr, QC, the senior council assisting, said consumer lending practices would be a focus for the first round.

Mr Mott’s report yesterday came as National Australia Bank started cutting 1000 jobs — the first phase of a plan to reduce its headcount by the equivalent of 6000 full-time positions.