BHP Billiton, Fortescue Metals, Wesfarmers and Woolworths all reporting well as profit season wraps up

By finance reporter Stephen Letts Updated about 5 hours ago Related Story: Santos plunges to $2.7b loss, Sims crushed but Iluka returns to profit Related Story: Medibank profit rises but dividend falls Map: Australia Results from the big end of resources and retail dominate this week with BHP Billiton, Fortescue Metals, Wesfarmers and Woolworths all reporting and pretty well wrapping up the profit season. It has been a case of so far, not so bad, even quite good. At roughly half time, with 47 per cent of companies comprising 61 per cent of market capitalisation having posted results, Citi's Quantitative Research team has the scoreboard reading 30 per cent beating earnings forecasts, 26 per cent below and 44 per cent in line. AMP Capital's Shane Oliver has the score at 54 per cent beating expectations, with 68 per cent of companies reporting higher profits on a year ago — against the long-term average of 62 per cent — and 69 per cent raising dividends. "Company guidance has had a slight positive skew," Mr Oliver said. "The better-than-feared nature of the results to date has been reflected in 66 per cent of stocks seeing their share price outperform the market the day results were released." There is a caveat though; there is still a way to go and good results have a habit of coming out early in the reporting season. Resources: BHP Billiton (Tuesday), Fortescue (Wednesday) and South 32 (Thursday) BHP Billiton's result will not be pretty; expect net profit to be down at least 80 per cent on last year's interim profit of almost $US5 billion. The $US7 billion charge to US onshore oil and gas assets has been well ventilated, after BHP lowered its short and medium-term oil prices. BHP conducts a bi-annual review of its asset values and it begs the question whether any other nasties will pop up in the result. Morgan Stanley resources team — which recently upgraded BHP to a buy — said there was some potential for further impairment, although probably at the more modest end of the scale. That is, of course, unless BHP capitulates on its commodity price assumptions, in which case investors better put on their hard hats. The other big news will be the seeming inevitability of the shrinking Big Australian cutting its progressive dividend policy. Deutsche Bank argued in a note to clients BHP will pull both the capex and dividend levers to maintain its A credit rating. "It [BHP] can cut financial year capex to a reasonable $US5.5 to $6 billion — current guidance is $US7 billion — and cut the progressive dividend by 50 per cent or $US3 billion," Deutsche Bank said. The broker said BHP could cut even deeper into capex — by another $1.5 billion — but argued that it would just damage the business. "Cutting the dividend, in theory, does not change the fundamental value of the company, it is simply an allocation of cash," Deutsche Bank noted in maintaining its valuation of BHP at $20.27 a share. "However, we think it would improve BHP's ability to make value accretive buybacks or pursue M&A [mergers and acquisitions] in oil and copper at this low point in the cycle." Deutsche Bank is looking beyond the profit number — and dividend cut — in the results focusing instead on management's strategy to lift growth and returns. BHP's smaller Pilbara neighbour Fortescue Metals Group has been punished like all the iron-ore miners, but its recent second quarter results showed an improvement, at least in an operational sense. It cut cash costs and the capex budget, improved its mining efficiency and the quality of its product, all of which has boosted margins and moved Fortescue break even costs down to around $30 a tonne. Net profit may even rise to around $400 million, which would be a pretty good effort in the current environment. South 32 — the BHP spin-off of second tier assets — reports as well in what has so far been a short and less-than-prosperous corporate life. Nothing to get excited about here — expect more talk of ripping costs out and there is potential for impairment charges to make for a pretty grim result. Infographic: Share price response relative to market on day of results (Source: AMP Capital) Retail: Wesfarmers (Wednesday), Woolworths (Friday) and Harvey Norman (Friday) Sales growth for all the big supermarket chains is less than thrilling as Coles, Woolworths and Aldi duke it out in a bare-knuckled price fight. Morgan Stanley has been studying the checkouts and found Coles and Woolworths have cut prices by around 4.6 per cent, and Aldi by 1.2 per cent — so in relative terms, not much has changed. "Industry data indicates supermarkets are doing it tougher … supermarkets industry sales growth has slowed to just 2.5 per cent while food inflation in supermarket products has turned negative," Morgan Stanley noted. As the supermarket space race continues — floor space growing at around 4 per cent a year — the immediate outlook is certainly challenging. Wesfarmers is expected to deliver a first half profit a tad under $1.4 billion, or roughly what it produced this time last year. Food and Liquor sales should be growing by a respectable 3.5 per cent, while Bunnings will be good for another 7 per cent or so growth. Wesfarmers' coal operations — as opposed to Coles operation — will be a black spot and drag things down a bit. Woolworths set its first half profit guidance of $900 million to $1 million back in October and has stuck by it ever since. Most brokers are going for the lower end of the range which would represent a 30-per-cent drop on the previous corresponding period. Credit Suisse has forecast zero like-for-like sales growth for Woolworths in food and liquor for the second quarter, which is hardly laying them in the aisles. Credit Suisse also forecasts a considerable contraction in margins, which is unlikely to be appreciated in the investor community. As well, the home improvement business — Masters — will most likely be booked in as a discontinued operation, incurring a rather nasty impairment charge in the numbers. Harvey Norman, on the other hand, seems to be sailing along quite happily, driven by the strong tailwinds from the housing sector. Executive chairman Gerry Harvey does not provide guidance but a half-year profit of around $170 million — up from $138 million last year — on sales growth of 7 per cent is a reasonable punt. Qantas (Tuesday): Qantas is popular tip amongst brokers to produce a pleasant first-half surprise with a profit of around $920 million, at the top end of its guidance range. Whatever the number, the carrier will certainly gain altitude from last year's $200 million profit and the $235 million loss back in 2014. Sydney Airport traffic statistics certainly point to a strong results and international growth and tumbling fuel prices are doing their bit as well. QBE (Tuesday): The consensus view is the globally focused insurer QBE will roll out full-year profit of $US850 million, which would be up on last year's $US821 million. But as always with insurers, there are many complicated and messy bits that make up the bottom line. So far the domestic insurers — Suncorp and IAG — have suffered from poor investment returns as much as natural disasters. Mark-to-market downgrades on asset values could drag down the second half performance while policy renewals may be weaker than expected. Will wage growth and capex crawl off the mat? The week's economic highlights will be two of the domestic economy's lowlights: wages and private capital expenditure. While employment has remained solid, wages and capex have been missing links in non-mining business indicators pointing a broadly robust economy. Capex and the associated expectations survey, due Thursday, have been variously described in previous quarters as appalling, dismal and recessionary. The forecast this time around is for a 1-per-cent contraction, which does not sound great but means things are getting worse at a slower rate than the 9-per-cent fall in December. Wages growth while not dismal, could be described more accurately as flat to moribund at 2.3 per cent year-on-year. It probably will not get worse, but don't expect it to get better in the short-term at least. Overseas, things are quiet. US GDP growth is likely to revised down again, from the current estimate of 0.7 per cent to 0.5 per cent. Unofficial reading of manufacturing activity in the US, Europe and Japan will be released as well and all are expected to show expanding — if not thriving — activity. Australia Day Notes Wednesday 24/2/16 Wage price index Construction work Q4: Wage growth insipid, around 2.3 per cent year-on-year Q4: Down 4 per cent in last quarter, likely to be flat Thursday 25/2/16 Capex Q4: Has been at recessionary levels, couldn't get much worse, could it? Friday 26/2/16 Private sector credit Jan: Has been solid plus 6 per cent year-on-year Corporate Day Notes Monday 22/2/16 Bluescope Steel Brambles Int: Could be a positive surprise driven by cost-cutting Int: A solid first half profit of $US300m forecast Tuesday 23/2/16 BHP Caltex Oil Search Qantas QBE Int: The focus will be on the dividend FY: Profit should rise strongly, dividends up too? FY: PNG growth makes it one of the least bad oil plays. Profit could rise 50 per cent Int: A half-year profit above $900m expected FY: Flatish profit of around $US850m Wednesday 24/2/16 Asciano Flight Centre Fortescue Wesfarmers Worley Parsons Int: Focus will be on the takeover offer from Qube Int: Should be a solid result Int: Cost-cutting and efficiency could make it a not so bad result Int: A $1.4-billion profit will be solid, but flat. Int: Servicing the gas and mining industry means a significant drop in profit is on the cards. Thursday 25/2/16 Crown Entertainment Perpetual South 32 Int: Profit likely to be dragged down by Macau Int: Probably a flat profit of around $60m Int: Not pretty, more cost cutting Friday 26/2/16 Harvey Norman Woolworths Int: Going OK, profit of around $170m tipped Int: Going backwards, profit below $1bn Overseas Day Notes Monday 22/2/16 US, EU, JP: PMIs Feb: Markit's series on manufacturing activity, all expected to be expanding Tuesday 23/2/16 US: Home prices US: Existing home sales Dec: CaseShiller series, up around 6 per cent year-on-year Jan: Robust, up 15 per cent in December Wednesday 24/2/16 US: New home sales Jan: Up 11 per cent in December, may be lower this time Thursday 25/2/16 US: Durable goods orders EU: Inflation Jan: A measure of business investment. Dropped in December Jan: Stubbornly low, 0.4 per cent forecast Friday 26/2/16 US: Economic growth Q4: Forecast to drop from 0.7 per cent yoy. Not brilliant From other news sites:

Small Australia banks to gain as bigger rivals face mortgage capital increases

Ed Balls: Labour government would fast-track the mansion Tax Shadow Chancellor brings controversial proposal to top of Labour’s ‘to do’ list Andrew Grice Author Biography Monday 22 December 2014 Imposing a mansion tax on homes worth more than £2m would be one of the first acts of an incoming Labour government next May, Ed Balls has revealed. In an interview with The Independent, the shadow Chancellor said he hoped that the 100,000 people with the most expensive properties would start to pay the levy in the 2015-16 financial year, even though that starts a month before the May general election. Mr Balls disclosed that work on introducing the mansion tax would start on “day one” of a Labour administration. The tax would be included in his first Budget so the £1.2bn a year it would raise could be injected immediately into the NHS. He has asked the Treasury to start preparations before the election. READ MORE: • Ed Balls interview: 'If I think about the deficit when I’m playing the piano, it all goes wrong' • Editorial: Bad policy, good politics “Saving the NHS will be at the heart of our first Budget,” he said. “I would like to see that revenue coming in in the first year of a Labour government, before the end of the financial year. We will have to see the practicalities.” Mr Balls denied this would amount to retrospective legislation: “A charge is paid in that [financial] year on the valuation on a date in that year. We will be clear what we are going to do in our manifesto. No one will have any doubt about our intentions.” He recalled that in 1997, the incoming Blair Government imposed a £5bn windfall tax on the privatised utilities seven months after a May election. His announcement is designed to answer claims that the mansion tax revenue would be delayed, jeopardising Labour’s pledge to spend £2.5bn more on the NHS than the Conservatives. The rest would come from a levy on tobacco firms and reducing tax avoidance by hedge funds. ... Mr Balls, a former Treasury special adviser and minister, believed the Treasury is already working on the mansion tax, in line with normal Whitehall pre-election preparations. “I am sure that the Treasury will be gearing up to make sure we can deliver this,” he said. “As a backstop, we will legislate for the mansion tax to start in the following financial year, 2016-17.” The Treasury has reportedly established there are 55,000 homes worth more than £2m in Britain The Treasury has reportedly established there are 55,000 homes worth more than £2m in Britain Labour’s mansion tax will be about £3,000 year for homes in £2m-£3m bracket, with a higher charge for more expensive properties. Mr Balls said nobody whose house was worth less than £2m today would pay it, because the starting point would be raised. To answer criticism that the levy would hit pensioners in expensive homes, he said only those on the 40p higher income tax rate would have to pay it. Others could defer it until when the property was sold or they died. Householders would have to disclose their property’s value on their income tax return. HM Revenue & Customs would carry out checks but if a person obtained an independent valuation, HMRC would not “second guess” it, Mr Balls said. The shadow Chancellor said Labour’s tax would build on George Osborne’s 15 per cent levy on “enveloped” properties worth more than £500,000 bought by a company rather than an individual. HMRC would replicate that system for people who owned properties worth more than £2m. Mr Balls argued that building on an existing system would be “a more straightforward proposition”. He decided not to change the “mansion tax” name coined by the Liberal Democrats, who support a similar charge. He said David Cameron had failed to prevent “ending the spare room subsidy” being called the “bedroom tax” and Margaret Thatcher had not stopped her “community charge” being known as the “poll tax”. ========= UK unemployment fell 63,000 to 1.96 million in 3 months to October, figures show Unexpected bills Why stamp-duty tax cuts may hurt homebuyers Dec 13th 2014 | From the print edition Timekeeper Rolex values your time. Timekeeper by Rolex. .. “TODAY I’m cutting stamp duty for millions of homebuyers,” crowed George Osborne, the chancellor of the exchequer, on December 3rd when announcing reforms to stamp duty, a tax on buying property. Yet hidden in the forecasts of the Office for Budget Responsibility (OBR) is an assumption that implies most homebuyers will be made worse off by the tax cut. For every one percentage-point reduction in the tax, the OBR assumes that house prices will rise by 1.4%, leaving buyers with a bigger overall bill. At first sight, this seems odd. Economics suggests that the sensitivity of buyers and sellers to changes in the price—“price elasticity”, in the jargon—influences who ends up paying most for “transaction taxes” like stamp duty. Housing supply is not very responsive to price: it is hard to build homes quickly to take advantage of a price spike. That means, according to economic reasoning, that, if stamp duty is cut, you would expect prices to rise and sellers to benefit more than buyers. Unexpected bills Office for Budget Responsibility What economists would not expect, though, is that buyers would end up absolutely worse off. So why are buyers left with a bigger overall bill? Mortgages are key to solving the mystery. Most buyers are what economists call “credit-constrained”. What they can splash out on a new place is limited by what they can borrow. And the amount they can borrow depends in part on how much cash they can put down as a deposit. Stamp duty—a bill which must be paid immediately on buying property—drains that cash. When it is cut, buyers can put down higher deposits and borrow more. As a result, demand rises, pushing up the price enough to more than offset the benefit of the tax cut. If the OBR is right, buyers of a property that cost £300,000 before the change in stamp duty now face £4,000 less tax but a price £5,600 higher. Buyers who were not previously in the market but can now afford a deposit will benefit, but this group is small. The main winners are homeowners, who benefit from higher house prices. There is a parallel with the government’s flagship intervention in the housing market: Help to Buy. That scheme aims to assist buyers who cannot afford deposits by providing them with government loans. But its biggest effect is to boost demand and hence prices. Homeowners keep winning from government policy. ========== Small Australia banks to gain as bigger rivals face mortgage capital increases Mon, Dec 08 05:16 AM EST * FSI aims to level playing field for small banks * Credit Suisse, Bell Potter upgrade regional banks * ANZ, NAB seen as most vulnerable to new capital recommendations By Swati Pandey SYDNEY, Dec 8 (Reuters) - Australia's smaller banks stand to benefit from a government-backed financial sector review that has recommended the nation's big lenders set aside more capital for their main business of mortgages, in a move towards a level playing field. The recommendation, if implemented, could help the smaller banks grab market share from the country's 'Big Four' major lenders for whom mortgages account for 40-60 percent of total loans. It will also help make them more competitive by narrowing the gap between the majors and their smaller peers on the capital set aside against potential losses on mortgages. Australia's major banks will need as much as A$48 billion ($39.68 billion) after the financial system inquiry (FSI) on Sunday called for stronger capital for them to become among the world's safest lenders. Major banks currently, on average, keep aside 18 percent capital against potential losses on home loans compared with 39 percent for smaller peers, helping the big banks produce better shareholder returns. Under the proposed rules, though, the majors will have to set aside 25 percent to 30 percent capital. "It is pleasing the inquiry has acknowledged the competitive gap enjoyed by the majors needs to be closed and would like to see action taken quickly to address this issue, before the dominance of the Big Four is further entrenched. If that happens, Australian consumers will ultimately be the losers," Jon Sutton, acting CEO of Bank of Queensland, said in a statement. Recommendations by the inquiry, chaired by David Murray, former head of Commonwealth Bank of Australia, is open to consultation with regulators and industry until March 31. Following the FSI report, brokerages including Credit Suisse and Bell Potter upgraded ratings on regional banks. Smaller banks Suncorp, Bendigo & Adelaide Bank and MEBank praised the inquiry's effort to try and level the playing field. Big banks have already warned that raising capital requirements and mortgage risk weightings will lead to higher costs to consumers and smaller dividends for shareholders. Credit Suisse downgraded Australia and New Zealand Banking Group while Morgan Stanley noted that ANZ and National Australia Bank, with the lowest tier-I ratios among the big banks, were the "most vulnerable." "What Murray is trying to do is take away the lopsided nature of allocation of capital from the Big Four to the balance of the banking community," said Mark Bouris, executive chairman of Yellow Brick Road, a mortgage provider part-owned by Macquarie Group Ltd. (Editing by Muralikumar Anantharaman) ============================= Fed confident on U.S. growth, opens door wider to rate hike By Howard Schneider and Michael Flaherty WASHINGTON Wed Dec 17, 2014 8:05pm EST (Reuters) - The Federal Reserve on Wednesday offered a strong signal that it was on track to raise interest rates sometime next year, altering a pledge to keep rates near zero for a "considerable time" in a show of confidence in the U.S. economy. Closing out a two-day meeting against a backdrop of solid domestic growth but trouble overseas, the U.S. central bank said it would take a "patient" approach in deciding when to bump borrowing costs higher. Fed Chair Janet Yellen told a news conference that "patient" meant the policy-setting Federal Open Market Committee was unlikely to hike rates for "at least a couple of meetings," meaning April of next year at the earliest. U.S. stock markets and bond yields rose as investors digested a statement that evinced faith in the economy while still projecting a slow-going approach to rate hikes. The dollar rallied broadly against major currencies. After some initial volatility, futures markets continued to point to a rate rise in September, while 13 of 19 big Wall Street firms polled by Reuters said they expected an increase by June, in line with results from a November survey. The Fed has held benchmark overnight rates near zero since December 2008. [FED/R] "Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said. Significantly, it said the statement was "consistent" with its prior guidance that it would wait a "considerable time" before hiking rates. Eric Green, an analyst with TD Securities in New York, said Yellen's definition of "patient" was "less dovish than a reading of the statement would suggest." "In effect, it is open season after the March FOMC meeting," he said. Yellen told reporters that even with a sharp drop in energy costs, the

Fed felt confident that inflation would eventually turn higher and approach the central bank's 2 percent target, and she suggested officials would feel comfortable raising rates as long as other economic signals stayed strong and expectations of future inflation held firm. "By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions,"

Yellen said. GO-SLOW APPROACH After a week of turbulence in global financial markets, the U.S. central bank looked firmly beyond economic difficulties in the euro zone, Japan and Russia and offered a mostly upbeat assessment of the U.S. economy's prospects. Updated quarterly projections, presented as ranges that exclude the three highest and lowest individual forecasts, showed policymakers continue to expect the U.S. economy to grow between 2.6 percent and 3.0 percent next year. They foresee the unemployment rate, currently at a six-year low of 5.8 percent, moving down to an average of between 5.2 percent and 5.3 percent toward the end of next year, a bit lower than in their previous forecasts in September and in line with what they think is in keeping with full employment. Fed officials, however, acknowledged inflation was likely to slow next year to between 1.0 percent and 1.6 percent, the result of a cratering in oil prices. But core inflation, which excludes volatile food and energy costs, is projected to dip only a bit next year before turning higher to close in on the Fed's target by the end of 2016. Balancing optimism on growth and jobs with the reality of low inflation, policymakers indicated they would take a slower approach to the pace of future rate hikes. The median projected federal funds rate - the Fed's main economic lever - was 1.125 percent for the end of 2015, a quarter percentage point lower than the last projection. Officials also lowered projections for 2016 and 2017. Despite the sharp drop in oil prices and the collapse of the Russian rouble, the Fed's statement excluded any mention of the recent global economic turmoil. Asked whether spillover from Russia's crisis could harm the U.S. economy, Yellen said the two countries were too loosely linked to expect any appreciable impact. "I see the spillover as pretty small but we're obviously watching that closely," she said. The vote to back the statement was seven to three, with dissents from both ends of the policy spectrum. (Reporting by Howard Schneider and Michael Flaherty; editing by Tim Ahmann, Paul Simao and Leslie Adler) ========================= Khalil: Corrupt state employees will be denied immunity Connect Tweet  RSS  Follow  Email  Print Share The Daily Star BEIRUT: Finance Minister Ali Hasan Khalil vowed Wednesday to pursue his anti-corruption drive in the real estate department and assured that the political immunity would be lifted on any official involved in illegal activity. Speaking at a news conference after visiting the Justice Palace, the minister said that he handed to the attorney general seven files pertaining to the illegal seizure of government-owned lands in several areas of Lebanon. The attorney general also received details about the involvement of certain clerks in the real estate department who are suspected of receiving bribes and favors from some citizens. This marks the first time since the Taif Accord that senior and junior public employees clerks at the Finance Ministry’s real estate departments are prosecuted for graft and abuse of power. Sources said the state loses hundreds of millions of dollars each year as result of the rampant corruption in the real estate departments . The minister did not specify who seized the lands of the state in rural areas nor the political parties that were behind them. Khalil said that over 93 million square meters (23K Acres) of government lands have been illegally seized, adding that the ministry was also checking on reports that there were similar cases in many other regions. “There is no political immunity for any person. Soon you will hear of new files, and one of them is Customs,” he said. Earlier, Khalil referred the names of officials suspected of corruption to the attorney general and transferred most real estate employees to new locations in a bid to stamp out graft. Lebanon is seen as one of the worst countries in terms of corruption, according to surveys carried out by Transparency International. Some news media reported that the authorities are questioning a government employee who owns five apartments and cars although his salary is below LL1 million ($666) a month. A version of this article appeared in the print edition of The Daily Star on December 18, 2014, on page 5. - See more at: http://www.dailystar.com.lb/Business/Local/2014/Dec-18/281438-khalil-corrupt-state-employees-will-be-denied-immunity.ashx?utm_content=bufferc4af3&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer#sthash.f45X7hZk.dpuf ========================================= Capital call for Australian banks Mon, Dec 15 20:25 PM EST By Daniel Stanton SINGAPORE, Dec 16 (IFR) - A long-awaited report last week called on Australian banks to raise additional capital to manage the risk of a housing crisis, potentially sparking raisings of up to A$20bn (US$16.6bn) if regulators adopt the recommendations. David Murray's Financial Stability Inquiry had been examining the health of the domestic banking system and its ability to cope with another crisis. The report, published on December 7, advised that Australian lenders should aim to be in the top quartile of international banks, in terms of their core equity Tier 1 capital, and warned that they should not rely on an implicit government guarantee to bail them out of trouble. Differences in regulatory and accounting treatment between different countries mean it is hard to compare capital ratios, but the report has estimated that Australian banks have core equity Tier 1 ratios of 10.0%-11.6% under BIS treatment, short of the 12.2% required to be in the world's top 25%. Morgan Stanley estimated that the four major banks needed to raise A$8bn-$12bn to meet the FSI's recommended capital levels, while Deutsche Bank put the shortfall at A$20bn, based on the midpoint. Morgan Stanley said it expected banks would need to raise A$38bn in total come the end of the 2017 financial year to support loan growth and achieve a 10% CET1 ratio under Australian standards, with the funds coming from dividend reinvestment plans, asset sales and share placements. "On our estimates, ANZ and NAB look more vulnerable to higher capital requirements than CBA and WBC (Westpac), given a lower Basel CET1 starting point and weaker capital generation," wrote Morgan Stanley analysts. "With NAB likely to benefit from asset sales and the run-off of legacy assets in coming periods, we view ANZ as the most likely of the banks to undertake a large share placement or rights issue in coming months." Shares in the Big Four banks all rose last Monday, as it emerged that the recommended capital increase was less than investors had feared. ANZ and Commonwealth Bank of Australia went up 0.9% each, while Westpac and National Australia Bank gained 1.0% and 1.7%, respectively, against a 0.7% increase in the All Ordinaries index. Bonds and credit default swaps, or CDS, were largely unchanged. Smaller banks, which currently have a lower CET1 requirement of 7%, fared less well: Bank of Queensland shares dropped 1.8%, while Bendigo and Adelaide Bank and Macquarie Bank each fell 0.2%. The report recommended that banks using an internal ratings-based approach should increase the risk-weighting they applied to residential mortgages to 25%-30% from the current level of around 18%, which would consume an extra 1% of CET capital, equivalent to A$14bn for the Big Four banks combined. Standard & Poor's estimated that the major Australian lenders were likely to be close to the CET ratio minimum for domestic systemically important banks of 8% under Australian criteria, if they applied the recommended risk-weighting, meaning that they would need to raise capital to maintain a buffer. Less government support The report said that banks should bolster their capital ratios to weaken perceptions of an implicit government guarantee, not least because Australia was anxious to hold on to its AAA sovereign credit rating. The current implied state support means that the issuer credit ratings of the Big Four banks are two notches higher under ratings from Moody's and S&P, and the latter considers the government "highly supportive". As a result, there is a risk that bank bonds can be downgraded if implicit state support is removed. "Government should not generally guarantee the ongoing solvency and operations of individual financial institutions," the report said. "However, there may be instances - particularly where system-wide failure is threatened - where public sector support of the basic functions of the financial system is warranted, such as liquidity support by the Reserve Bank of Australia." The language in the Murray report encourages a move towards loss-absorbing bonds to help resolve a crisis at one of the banks, rather than drawing on taxpayer funds. It also suggested introducing a new capital security that would rank between Tier 2 capital and senior unsecured notes. An industry consultation will run until March 31 2015, after which regulators will decide whether or not to take the recommendations on board. This means that the amount of extra capital banks need to raise will not be known until next year. Another part of the report recommended that disclosure requirements could be reduced for large corporate issuers selling plain vanilla bonds, in an attempt to promote the retail bond market. (Reporting by Daniel Stanton, editing by Steve Garton) ========================