Westpac is within days (if not hours) of mounting a savage attack on the income and power of mortgage brokers in a move that could shed some interesting light on the unity of the banking cartel and the good that ill wind of the liquidity crisis is blowing the banks’ way.

Westpac has been negotiating with major broker groups this week about how far it can cut commissions without losing too much business. The bank seems to believe it can keep most of the broker channel despite reducing commissions by as much as 25%.

Let me see. If I’m a broker and there’s no difference to my client in the rates on offer but one bank is prepared to pay me $1,000 for the business and Westpac pays $750, gee, who would I recommend?

A cynical soul might suggest Westpac could only maintain such a belief if it also thought the rest of the banking club would quickly follow suit.

The Sheet last month tipped an attack on broker commissions but brokers believe Westpac is about to jump, wanting the announcement out before an analysts meeting next week.

Which leads to another thought: Such a public and controversial move, putting margin-protection ahead of market share, looks like the sort of strategic move a bank would make when it’s about to go to the market to raise capital.

In the present climate, Westpac’s share price has benefited from a reputation – justified or not – of being the most conservative bank in its lending practices. Cutting broker commissions could seriously impact on market share, but it would reassure jittery investors being asked for more cash. On yesterday’s ASX close, Westpac enjoyed a price/earnings ratio of 12.15%, followed by the CBA on 10.98%, NAB at 9.82% and the ANZ just 8.01%. (Did anyone just mention Mick Gatto, Opes Prime, Chris Murphy, free Masers and bank officers selling their shares after hearing about a spot of bother before the rest of the market? No, I didn’t either.)

The main concern for buyers of Australian bank shares at present is whether they will be able to maintain the present level of dividends as the credit crunch wears on. That becomes a particular issue for a bank that might be about to undertake a capital raising.

On the other hand, the local cartel is set to eventually power out of the crisis with reduced competition and much greater market share – the odd mortgage broker notwithstanding.

PS: Westpac has this morning cut commissions by as much as 30% – but there’s no announcement about it to the stock exchange. They must think losing that distribution channel is not material.