“The banks are running primarily because the report isn’t as tough as expected. There is no requirement to separate banking from wealth and the remuneration structure has been left to market forces,” ST Wong, chief investment officer of Prime Value Asset Management said.
“There are no further triggers to pressure additional lending restrictions. That’s a net positive,” the fund manager, who holds the banks, said.
Citi analysts described the final report as “pragmatic.” It “delivered relatively few changes to the law with no meaningful structural changes to the industry and no radical regulatory changes,” they said.
“The restructuring work already underway by the major banks and regulators has avoided firmer recommendations.”
For the wealth managers, the lack of changes to the vertical integration model is likely to be a source of relief for AMP and IOOF, Credit Suisse analysts believe.
AMP shares surged 9.5 per cent to $2.42 and IOOF shares rallied 11.5 per cent to $5.44.
“With their business models arguably still intact, they now have to work through the banning of grandfathered commissions, consolidation of super accounts, limits on advice fees and a more forceful regulator going forward,” the Credit Suisse analysts said.
“However, we caution being positive on these stocks ahead of their pending result updates, which could include some large cost items to implement their ‘business as usual’ strategies.”
“For AMP and IOOF I think that in the short term the fact that there is no further requirement for customer remediation and restructuring is a short-term positive,” Mr Wong at Prime Value agreed.
“The underlying issues for these companies are probably more internal now,” he said, with AMP under a new CEO and IOOF’s chairman and CEO stepping down in December.
Other financial-sector firms that were boosted after the report included Australia’s biggest insurance brokerage firm Steadfast, which jumped 11.3 per cent to $2.90.
The Credit Suisse team commented that, while the final report remains vague on insurance brokerage commissions, “it does suggest an extended timeframe of reviewing such commissions in around three years time.”
That does not put the issue of commissions to bed, they said, but was likely to be enough of a positive for a relief rally.
However, 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¢.
Mortgage brokers will be subjected to a “best interests” duty and the government said it will move to ban trailing commissions from July 2020.
The government said it would not immediately adopt a call for upfront commissions to also be banned and be replaced by a customer-paid fee, which Labor indicated it would support.
“For the mortgage brokers, the recommended move to a borrower-paid fee model could have a large impact on future profits. But we are not sure of the implementation timeline,” Prime Value’s Mr Wong commented.
“The fact that the mortgage brokers are down 20 per cent-plus – that seems pretty harsh in the short term,” he said.