Bank royal commission insider trading claim is ‘bulls–t’

A few facts suggest the latest claim is unfounded speculation being fanned by Labor to seize on public discontent about banks and politicians.

Handsome profits

The Australian Securities and Investments Commission uses a $45 million Market Analysis and Intelligence system to interrogate movements in share prices, including the identities of who have been trading.

If anything “fishy” was going on, as Labor finance spokesman Jim Chalmers says, ASIC should pick up any misconduct.

I highly doubt they will – for several reasons.

First, short selling positions in the big banks, that is investors betting on falling shares prices, were around a five-year high before the royal commission’s report and these trades had delivered handsome profits to hedge funds in the previous few weeks.

Any hedge fund worth its salt would have covered some of its short positions, known as a “short squeeze” rally, in case the royal commission report was not as negative as feared.

Second, bank shares on Monday only rose to the same level they were at on Thursday after a sell-off on Friday.

On Monday, hours before the report was released, major banks led the market with some modest gains. Commonwealth Bank of Australia shares rose 0.8 per cent, Westpac climbed 1.2 per cent, National Australia Bank lifted 1 per cent and ANZ closed the session 1.2 per cent higher.

Investors were not exactly pinning their ears back buying, as they were the next day when the big four bank stocks rallied $19.1 billion after the royal commission confirmed no break up of banks’ wealth management arms and no crackdown on responsible lending laws.

Westpac surged 7.4 per cent, CBA jumped 4.7 per cent, ANZ shot up 6.5 per cent and NAB climbed 3.9 per cent.

If there was any leak, it must have been narrow and minuscule.

AMP fell 1.3 per cent on Monday, suggesting there was no front running in its stock. The wealth manager was perhaps the biggest winner from the royal commission.

On Tuesday AMP rallied 9.5 per cent after the commission didn’t recommend dismantling vertical integration for financial advice and selling in-house financial products.

ASX-listed mortgage brokers Mortgage Choice and Australian Finance Group were smashed, with Mortgage Choice falling 26.4 per cent to 77¢ and Australian Finance Group dropping 29.1 per cent to 90¢, in response to the planned crackdown on mortgage broker commissions. No sign of front running the day before.

Third, trading volumes in bank stocks were not unusually high. Market liquidity tends to be good mid-morning, enticing professional investors to put on larger trades.

Fourth, Japanese banks stocks – unaffected by the royal commission – jumped higher in concert with Australian bank shares at 11am Sydney time (9am Tokyo time) on Monday. It’s likely broader international and macroeconomic events contributed.

Gyrated wildly

On Friday in the US, payrolls surged 304,000 in January, with employers hiring the most workers in 11 months, pointing to underlying strength in the world’s biggest economy.

Fifth, past confirmed leaks of market-sensitive public policy moves have rocked listed stocks much more.

For example, bank stocks crashed on a leak to The Australian Financial Review hours before the May 2017 federal budget was released that the big banks would be hit by a $6 billion tax. Scott Morrison was the then-treasurer. Sky News had given a similar foreshadowing.

Similarly, bank shares gyrated wildly in 2013 on a leak to the Financial Review that Labor’s then treasurer Chris Bowen planned to impose a new bank deposit levy.

Little wonder Treasury officials privy to the royal commission report over the weekend were forced to sign confidentiality agreements punishable by two years’ jail if they had loose lips.

Such was the strictness of tightly holding this information, a Treasury official followed me to the toilet in the media lock-up held 1-4pm Monday before the report’s public release.

There is little sign of a “smoking gun”, mainly just theories confirming the public’s worst thoughts of bankers and politicians.

Source link Finance News Australia

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