A super earnings boost for banks?
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Christine St Anne is Morningstar's online editor.
BT Financial Group chief executive Brad Cooper recently singled out superannuation as an area where banks could boost their market share. He described the banks' bid to capture a slice of the superannuation industry as a "land grab".
As head of Westpac Banking Corporation's (WBC) wealth management division, Cooper believes superannuation will be just as important as mortgages are for banks.
Australia's compulsory superannuation industry is now worth over $1.3 trillion. It is also a little over 20 years old. Yet the major banks have not necessarily succeeded in grabbing part of this market to grow their businesses.
As part of Westpac's most recent half-year results, BT Financial Group reported a 14 per cent fall in net profit.
Commonwealth Bank of Australia's (CBA) wealth management division also did not report stellar results, posting an 11 per cent fall in net profit for the fiscal year to 30 June 2012.
Trading updates during the recent reporting season from National Australia Bank (NAB) and Australian and New Zealand Banking Corporation (ANZ) also revealed lacklustre performances by their wealth management businesses.
Wealth management includes managed investments, which have been captive to weak consumer sentiment. However, the superannuation portion of wealth management could offset falls in other areas of banking.
"For banks, the wealth management industry does not require as much capital as lending. The wealth management businesses can also offset the cycles in their lending businesses," Morningstar sector head of financials, infrastructure, insurance and property David Ellis says.
Moreover, capturing part of a $1.3-trillion-dollar market can help banks grow their earnings and therefore sustain their generous dividend payments.
However, Ellis says the headline earnings of the major banks have suffered from negative investor sentiment, with the banks' wealth management arms struggling in the past few years.
While superannuation is a tough market to crack, Ellis says the banks should have been able to garner a solid piece of the superannuation sector.
"It's ironic that the massive inflows are going into the superannuation sector, yet institutional wealth managers are not really capturing a lot of those flows," Ellis says.