All banks will be required to provide details on single-stock exposures through margin lending, according to a new Reserve Bank of Australia (RBA) edict.
However, the RBA's concerns about leverage against single-stock investments and a previous requirement that banks disclose their exposure of loans for singlestock portfolios may be overstated.
According to CommSec general manager Matt Comyn, single-stock margin lending portfolios make up a relatively small part of a bank's total margin lending portfolio. Of CommSec's 60,000 clients around 2200 clients have singlestock portfolios, representing $235 million of a $6 billion loan book, Comyn said.
"When you have a couple of per cent of the client base who hold single stocks it's a long bow to draw to think its going to cause any issues," he said. "If you compare that against the collateral securing, those loans are only geared at 31 per cent, so it's not really a significant proportion of our book, as the majority of our clients are holding between five and eight stocks.
"If you look at the industry level the growth of the last three years has been fantastic and I think the RBA are looking at reviewing reporting procedure on the back of that rather than anything else . I think the appropriate measures are already in place."
Margin loans totalled $24.8 billion at the end of June 2006, up from $6.7 billion in September 2000. RBA figures showed margin calls have increased in the June quarter, up to 0.52 per 1000 clients compared to 0.28 per 1000 in March.
This had to be put in context with the March quarter's figures, the lowest on record since figures were collated in September 2000, and June was still the third lowest on record, Macquarie Margin Lending head of sales and marketing Peter van der Westhuyzen said.
Macquarie Margin Lending has a daily monitoring process across its entire loan book, which covers every single stock portfolio it runs. "Every margin lender is conscious about managing the risk in their loan book prudently," van der Westhuyzen said.
The single-stock portfolio discussion needed to be put in context, he said. "If you are looking at a single stock amongst the top 10 companies this, in terms of risk where you are only geared to say 45 per cent, may actually be a more palatable risk position than say having two or three shares in your portfolio that may be a at the lower end of market capitalisation size."
The FPA, while not commenting on individual products, said all financial advisers were obligated to provide advice that put the interests of the client first.
"They must also ensure the financial plan clearly discloses and explains any associated risks and these should be understood by the client. Any associated product recommendations should take into account the risk profile of the client and be appropriate to their specific situation," an FPA spokesman said.
"Within those parameters margin loans can play an important part in a portfolio but they must be appropriate to the client's needs and circumstances."
