Over the weekend the Government released the final report from the Financial System Inquiry, chaired by former CBA head David Murray. The report has 44 recommendations that include suggestions for superannuation, financial services products and banking capital requirements. When releasing the report Treasurer Joe Hockey said that a major focus was consumer protection with over 5000 of the 6500 submissions received following its interim report on credit card surcharges alone.
The report includes a recommendation that APRA should raise capital requirements for Australian Authorised Deposit-Taking Institutions (ADIs) – with a plausible range for current Australian major bank (CET1) capital ratios of 10 to 11.6%. The market will be closely watched today to determine the impact this will have, if any, on bank stocks. The consensus is that most of this has already been priced in, given it was flagged in the interim report.
On superannuation the FSI report recommends that the government should restore the prohibition on direct borrowing by superannuation funds and that APRA-regulated superannuation funds should have a majority of independent directors on their trustee boards. It also makes some recommendations around options for retirement phase, suggesting superannuation fund trustees should pre-select an option for members to receive their benefits in retirement.
The director of technical and professional standards at the SMSF Professional Association of Australia (SPAA), Graeme Colley, wasn’t too phased by the recommendation to prohibit borrowing in super.
“We might be looking at three or four stages before we see a bill,” Colley said yesterday.
“As Hockey emphasised in his press conference, these are only recommendations to the Government.”
He was more worried by the proposal to limit non-concessional contributions to superannuation.
“Limitation on non-concessional contributions is a little bit of concern because [particularly] for people in the 55-plus that’s the time when you do have a little bit money,” he said.
The report also contained some interesting remarks around negative gearing and identified it as a tax that distorts the allocation of funding and risk in the economy. “The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment,” the report said.
“Several of the Inquiry’s recommendations, including those on bank capital and the payment system, are for APRA and the RBA to consider as independent regulators. The regulators will consider recommendations relevant to their mandates,” Hockey said yesterday. Consultation will be open until the end of March next year.
Retail stocks
Switzer Super Report expert Charlie Aitken still likes certain parts of discretionary retail into the crucial Christmas selling period.
“With speculation about rate cuts increasing in the new year and petrol prices falling, I forecast, despite the woeful political situation in Canberra, that Christmas retail sales will surprise on the upside, with categories such as electronics, recreational goods, footwear and new cars leading the way,” he says.
Last weeks October retail sales were a positive lead into the year-end. Australian sales were up 5.7% over the year and discretionary spending, ex food and liquor was up 5.5% over the year.
“I like JB Hi-Fi, Super Retail, RCG Corporation and Automotive Holdings for a quick trade around Christmas and Wesfarmers fundamentally as a non-bank yield play,” Charlie says.
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