Australia won't be doing an Obama: you can (probably) relax (for now)

It's potentially one of the largest ever reforms of American banking, but in Australia, talk about the domestic ramifications of the Obama plan has so far been, well, a bit underwhelming.

Maybe our bankers are still too busy bonus-dreaming on the beach to worry about whether a US reform, which hasn't become law yet, will directly affect their own careers. The Australian media has found few local angles on the story, preferring to rely on US-focussed foreign copy from the likes of Reuters and the Wall Street Journal.

But before we get too complacent, let's review the facts (and the speculation) that's been (quietly) building since Friday. After all, Australia can't entirely avoid what's happening to Wall Street (can it?).

Local banking stocks dropped....

Let's start with something where the Obama/Volcker plan has already made a direct impact down under. On Friday, local bank shares led the market sharply lower, falling between 3.21 per cent (Macquarie Group) and 0.9 per cent (Westpac).

But recruiters contacted by eFinancialCareers don't think the Big Four will change their hiring plans this year in the wake of the US shake-up. Recruitment budgets are already in place and a dramatic freezing up of credit markets would be needed to force commercial banks into headcount cutting.

"Australia's banks still rely on global credit to basically function, so if there is a huge negative impact on credit - which hasn't happened - then that's negative for our banks," Patersons Securities associate director John Curtin told The Australian.

....but weren't rocked

Predictably enough, US firms like Goldman Sachs and JP Morgan, suffered greater share slumps than Australian ones, but British firms also fared worse than ours. Barclays shares fell 6 per cent and Royal Bank of Scotland was down 7 per cent: yet another indication that the markets view Australian banks as more decoupled from US events than their UK counterparts.

(Some commentators believe bank stocks are now a bit of a bargain, which is good news if you're waiting for share option prices to be set.)

No thank you, Mr President

Since the onset of the global financial crisis, the Australian government has had more than a year to work on its own regulatory reforms, so it was unlikely to copy Britain's opposition Conservative Party and jump on the Obama bandwagon.

Treasurer Wayne Swan didn't mince his words: "Australia did not suffer from the kinds of massive financial dislocations as the US suffered during the height of the global financial crisis. So we're not considering the kinds of domestic changes announced by President Obama."

The G20 is plenty

The Australian financial sector, in particular Macquarie and the foreign i-banks, has of course been following an international trend towards deferring bonuses and enlarging their equity component. And when it comes to curbing excessive employee risk-taking, that could be about as far as we go. Obama's announcements are, according to Swan, "separate to the G20 reform agenda that the government has been working on in international forums."

This week we should expect more and more Australian banking and political leaders to echo global criticism of the US scheme on the basis that it diverges too radically from previous international regulatory proposals, such as the reforms to Basel.

We don't like prop traders anyway

Australia is also unlikely to pick and choose certain parts of the US proposal. Take the crackdown on propriety trading. In Australia, this job sector is probably too small to prompt such a heavy-handed response from the regulators.

And the financial crisis has caused its own natural adjustment to the employment market: recruitment of prop traders has been slow for more than a year.

Perhaps most important is the fact that the Big Four just aren't big fans of risking their own money on the market. Westpac's trading income, for example, accounted for only 5 per cent of net revenue. CBA's income derived from market investments was 4 per cent. That compares with 76 per cent by Goldman Sachs, according to a recent analysis by Southern Cross Equities.

Returnees

Will American bankers soon be swamping the streets of Sydney? No. The US rules currently lack detail and a protracted Congressional debate is expected. Americans, hampered by their country's global taxation system, will probably continue to be underrepresented in the Australian financial sector.

Headhunters say the impact on the employment market, if any, will be limited to a few early returns of Australians currently in New York and London. The numbers will be small, concentrated on bankers working in prop trading, or in internal private equity or hedge funds.

Heading for the hedge funds

In the APAC region, however, Singapore and Hong Kong (rather than Sydney or Melbourne) are more likely to benefit from US hedge funds setting up and US bankers going to work there, reinforcing a trend which has been gathering momentum in recent months.

Soros Fund Management and GLG Partners are among those currently planning a Hong Kong office. The potential for making large personal profits at hedge funds in Asia will now seem all the more attractive to experienced US i-bankers.

"The news from America will probably motivate more investment bankers, especially those over 40, to work for hedge funds, or set up their own, instead of remaining as bank employees. Some of these people will naturally be looking to move to where the growth is: Asia," says Andrew Price, a director at Global Search Partners.

Should I really join a US (or UK) bank?

This question is probably more pertinent if you're considering a move to Wall Street or the City. For example, Morgan Stanley might not be so badly affected as other US giants. It's less reliant on prop trading and has a far smaller private equity business than Goldman. For a list of banks to avoid while abroad, click here.

Recruiters don't recommend turning down at offer from JP Morgan in Australia purely on the basis of the US proposals, and they have not yet heard of plans to curtail hiring at foreign banks here, which is picking up in both ECM and M&A. The financial crisis had already created examples of local franchises being decoupled from the woes of their overseas parents - just look at UBS, which is topping the ECM tables down here while it struggles in Europe.

A warmer welcome to Australia?

In the longer term, and in very general terms, Australia's decision not to follow the US plan might aid efforts to make the country a more important banking hub. The Australian Financial Centre Forum, a government-sponsored panel of finance-sector bosses, recently made several recommendations to boost the industry.

Although stopping short of "major tax and other concessions", its report favoured more competition and more open markets. The contrast with America now couldn't be greater.

Moreover, the Australian government isn't under the same public pressure to punish bankers. Sure, your average mum and dad aren't exactly pleased when banks announce profits while whacking up interest rates and accepting government-funding guarantees (and the sector has been hit by high profile failures like Babcock & Brown), but the outrage in Australia isn't is on the same scale to in America.

Asia better than America for Aussie expats?

Staying in generalist mode, if the American and British banking employment markets remain jittery because of uncertainty surrounding the proposals, more Aussies might start looking for openings in Hong Kong and Singapore instead.

But who really knows

Perhaps the most honest Australian commentary so far has come from Duncan Fairweather, executive director of the Australian Financial Markets Association. "We haven't yet seen the detail of what he [President Obama] is proposing and we haven't yet seen the outcome of the legislative process, so it's all a bit of crystal ball gazing at the moment.''