There are two groups of considerations that caused TGA's share price to drop from circa $3.00 to about $1.30 recently. One group are the facts, which may include operational and tectonic fears (major shifts of new technologies and new competitors' business processes), and the second group are the regulatory fears that Feen420 suggested are likely to go nowhere in a hurry. For now I'll stick with the regulatory fears.
I have in the recent past written my view on regulatory caps, and I suggested that TGA can function well within what the Review Panel has recommended, and it is substantially working within that framework already.
On the matter of Responsible Lending impositions slowing originations, the adjustment to implement Responsible Lending, and handling applications efficiently, have been made, and it seems from talking to two outlets, that applying the Responsible Lending criteria might do TGA more good than harm. I wrote about the two interviews in two separate posts - one recently, and the other some weeks ago.
On Thursday, 11 August, I looked into a third fear, the potential of an ASIC fine. If you poke around
http://asic.gov.au, and check a few ASIC media releases, you may get a feel for what ASIC might do in respect to TGA's lending assessments not being consistent with responsible lending obligations imposed by the National Credit Act. Consider the following two examples:
- The Bank of Queensland used the Henderson Poverty Index to estimate the living expenses of consumers applying for home loans, rather than asking borrowers about their actual expenses. It seems that ASIC did not impose a penalty – see http://asic.gov.au/about-asic/media...k-of-queensland-to-improve-lending-practices/. There is a degree of similarity with this case and that of TGA, which suggests TGA will not be fined, which view is strengthened by the fairly long elapsed time since this matter was raised and now, with no action taken by ASIC.
- Westpac was fined $1m for increasing credit card limits without applying responsible lending criteria – see http://asic.gov.au/about-asic/media...s-about-credit-card-limit-increase-practices/. The scale of this breach (the number of customers who got credit that they should not have been given it), and the impact of the breach (the number of customers who racked up harmful levels of debt) is likely to be many times larger than the both the scale and impact of TGA's breach. TGA used out of date Henderson Poverty Index metrics in its credit assessment process, but since liaising with ASIC it has introduced criteria that met with ASIC's approval, and introduced technology processes to handle leasing applications promptly.
I think we can reasonably guesstimate a possible fine as being anything between zero and $1m. With a share count of about 155 million, that would be somewhere between zero and half a cent per share – not a material consideration.
The buy-sell volumes suggest the SP will soon hit $1.50. That is only half what the SP was in the second half of calendar year 2015, so I would like to think that it will go to $1.80 by December.
