The Australian Prudential Regulation Authority (APRA) has expressed concern at the attitudes of some analysts who advocate listed entities paring their capital to a minimum.
APRA’s executive general manager, policy and research, Charles Littrell used an address this week to institutional investors to point to the generally sound position of Australia’s asset quality.
However, he pointed to some attitudes which he suggested risked undermining this position.
“On our more optimistic days and even a prudential regulator has the odd burst of optimism, APRA views the Australian position as emblematic of better management,” he said. “Our bank managements today appear more willing to give any excess capital back to the shareholders than to expend it on ill-considered initiatives.”
“On our more pessimistic days, we observe a share market and equity analyst cadre who, possibly contrary to good economic sense, view any cost cutting or retrenchment as positive news, reward entities who can’t find growth opportunities needing capital, and punish entities who raise capital because they perceive such opportunities,” Littrell said.
“From this perspective, it is easy to wonder if listed regulated entities are under too much pressure to pare their capital to the minimum, leaving an insufficient cushion for unexpected bad times,” he said.
Littrell said this pressure extended beyond banks to insurance companies, as any market follower would attest.
“We seem to have found a new share market game called “how fast can a company formerly in strife announce its improvement with a share buyback?” The answer in APRA’s experience is often “about a year faster than should be the case”.
