APRA approval?, page-5

He's wrong on APRA not approving the ANZ deal though.

@catsecret

I agree with you: APRA not approving the deal, while still possible, does appear rather unlikely at this stage.

There was another thing, in the latest Bell Potter note on IFL, that I found a bit odd, namely the fact that IOOF’s provision for remediations was deemed to be grossly inadequate in comparison with the corresponding figure reported by the big four banks.

For context, what the banks had done was a top-down assessment, where they simply took a fixed percentage (~30% from memory) of their revenue from advice over the previous ten years and set that aside as a provision for future remediation payments, knowing that it would provide them with a comfortable buffer.

The reason why they chose to approach it that way is obvious: for the big banks, the remediation figure is a much smaller percentage of their annual net income, so it doesn’t make sense for them to conduct a detailed case-by-case review.

On the other hand, IOOF have allocated ~40m$ to the review alone, with some 1,200 client files being independently reviewed by PWC, and with the auditors KPMG giving their sign-off to the overall process.

Presumably AMP too, which was mentioned in Bell Potter’s note as having booked a remediation amount per adviser similar to IOOF’s, followed a similar approach. I somehow doubt they would go into all that trouble, to arrive at a figure that grossly underestimates the reality of future remediation payments.

So, at least two of the main concerns raised by BP (ANZ deal not going ahead and provision for remediations being grossly inadequate), while related to risks that still exist, look a bit overblown to me.

Other than that, their point about continued margin pressure in the industry is obviously a valid one; but, under the assumption that the ANZ deal does go ahead, it is arguably already in the price.