Skilton flays at wrong targets

Some direct, but nevertheless misdirected, criticism by Suncorp's acting CEO Chris Skilton at an investor briefing yesterday highlights the weakness in the positioning of his, and other, regional banks.

When asked about Samuel's recent comments about banking competition, Skilton said the gap in the cost of funding between the AA-rated majors and the A-rated regional banks meant that regionals could no longer occupy the middle ground.

Skilton said the securitisation market was effectively dead and this meant that an avenue for recycling balance sheet assets had been closed.

"They (the regional banks) are going to have to rely much more upon a greater level of deposit funding where we are all paying the same rates," Skilton said.

He said the regional banks will not be able to be competitive with the majors because of the difference in the cost of wholesale funding.

One target was the Australian Competition and Consumer Commission.

"If Graeme Samuel thinks that the regional banks are going to keep the big bastards honest then I think he has got to rethink that, quite frankly," he said.

"It's a bit like the corner grocery shop is going to keep Woolworths honest in terms of pricing power. I hear the comments but I don't exactly understand the logic or analysis that sits behind it."

Skilton said wholesale credit spreads would narrow, but not to the levels they were before the financial crisis and nor should they, because they were not being priced for risk. Regional banks with balance sheets dominated by retail deposits would only be able to lend on low risk assets.

"I think you are going to see a widening of the gap between AAs in terms of being full service banks and those that are non-AAs that will look more like large sophisticated building societies," he said.

"So that middle ground where some of us were trying to position ourselves as small national banks if you like, competing across the field, that was ourselves, St George and Bankwest, is certainly going to be vacated."

A second target was the design and pricing of the Australian government's guarantee of wholesale liabilities.

"I see it as very difficult for a small- to medium-sized bank to compete in those areas that are largely funded by wholesale money, and I think that is going to be a challenge going into the future for governments in terms of competition policy," he said.

"My only comment is that if Graeme Samuel thinks at the moment that he wants to maintain the regionals because they are going to be a major competitor to the majors in those parts of the business, then I am afraid I don't think he understands the dynamics of the market at the moment."

To cover any unexpected problems Skilton said the full year guidance was adjusted upwards to 125 to 145 basis points.