Shares shock if shonky
Bank boffin warns of risk from royal probe
THE big banks face class action lawsuits if the banking royal commission finds evidence of misselling in the “mortgage mega-industry”, an industry expert says.
Analyst Jonathan Mott says the commission’s initial focus on consumer lending practices – and the potential for mortgage misselling – is significant.
Mr Mott, from investment bank UBS, has cut his target price for 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.”
Misselling is when consumers are sold products or services unsuitable for them.
Mr Mott said investors had become complacent about such risks after 73 investigations into the industry since the financial crisis last decade.
If the royal commission turned out to be “more bark than bite”, bank shares were fairly priced, he said. But shares could suffer if serious problems were uncovered.
At the launch of the royal commission into misconduct in the financial services industry last week, Rowena Orr QC, the senior council assisting, said consumer lending practices Finance Sector Union national secretary Julia Angrisano on the NAB job cuts would be a focus for the first round.
Inappropriate and unsuitable lending were among themes that emerged from submissions, Ms Orr said.
Mr Mott has previously released research indicating Australian banks may be sitting on $500 billion worth of “liar loans” – mortgages issued to borrowers who gave false information in their applications.
His report yesterday came as National Australia Bank started cutting 1000 jobs – the start of a reduction of 6000 full-time positions.
Analysts have broadly forecast widespread staff cuts in the Australian banking industry amid intense competition and scrutiny.
The Finance Sector Union’s Julia Angrisano said the cuts did “not meet community expectations”.