Putting the bite back into banking. What does a bank do after a 7% rise in its half-year profit and a tidy 6% rise in interim dividend for all its needy shareholders? Put up investor mortgage rates by 0.25% and owner occupiers by 0.12% — that was a small mercy for owner-occupiers. But it’s yet another example of weak-kneed banking leadership as the regional bank put profits in front of its customers. Bank of Queensland CEO Jon Sutton said yesterday the rate increase was the result of it balancing “growth, risk and margins over the long term”. No doubt the BoQ also claims it is customer-centric and puts those strange beasts, customers, first — first in line to be clipped, that is. The bank’s net interest margin rose 10 points to 1.97 cents in the dollar in the latest half year (the bank attempted to spin the figure by comparing it wrongly with the second half of 2014-15, which left the figure unchanged. That is not an apples with apples comparison with the first half of that year).
But here’s a reminder: in February, Reserve Bank governor Glenn Stevens said the recent rise in wholesale funding costs had not been sufficient to warrant banks increasing their lending rates independently of the central bank. Stevens said banks were still able to roll over debt at lower interest rates than they had paid several years ago. — Glenn Dyer
How to start a small steelmaker? Easy question (it used to be how to start a small Australian company, the answer, employ a Kiwi entrepreneur and give him a big one). After the collapse of steelmaker Arrium yesterday with at least $2.8 billion in debts, the question comes to mind. When the resources boom was at its peak it was worth just on $7 billion as it charged off into changing its iron ore mix so that it could push more iron ore into the booming Chinese market — as well as the resources boom. At last Friday’s close the market value was 99.5% of its peak, or just under $65 million. And that is how you start a small Australian steelmaker, with an iron ore export operation thrown in for nothing. And make sure the board isn’t very good, and a bit deaf to the people who count — banks and staff. — Glenn Dyer
RBA stability review. Arrium’s collapse and the bank bad debts means next Friday’s release of the first Financial Stability Review of this year from the Reserve Bank of Australia (there are two) will assume more importance than normal. The total Arrium debt of $4 billion-plus and the $1 billion-plus in bank loans to the stricken steelmaker from our big four banks means the central bank’s comments on bad debts will be closely examined by analysts and others. ANZ has already lifted its bad debts estimate from $510 million in the first half of 2014-15, to over $800 million. But that was up to a fortnight ago when it revealed it was adding another $100 million for exposures to some troubled resource borrowers, one of which is understood to be Arrium. Now Westpac, NAB and CBA will have to release their own higher figures. Remember bad debts are rising in the Kiwi dairy industry and the NZ reserve Bank wants the banks (our big four) to hold more capital against an expected continuation of this situation (it has already shown up in the NAB’s 2014-15 figures). Other points to watch for will be the continuing problems banks are having with classifying home loans between investors and owner-occupiers, and our old chestnut (but not for customers), weak bank culture and management. — Glenn Dyer
Cue China. Gloom or gloomier — China returns to the top of the global scare list next week with the release of March monthly and quarterly economic data, including the all-important GDP figure. All economic data are estimates — in China’s case that is very important to keep in mind. So next week, the timetable of estimates is: Sunday, bank loans; Monday, CPI and PPI (producer) inflation; Wednesday, Trade (and the performance of the export and especially import sides of the estimates); Friday, quarter-on-quarter GDP for the March quarter, industrial production, retail sales, urban investment (including the rebounding property sector). Monday week there’s house prices and later that week the yearly GDP figures. Things to look for for Australians: bank lending and whether it is going into property (and the size of the rebound in property investment and if the recovery in house price growth is continuing and widening across more of the country –keeping in mind this can only be a temporary help). Confidence levels seem to on the rise about China. Fool’s gold, again? — Glenn Dyer
Is anyone out there shorting the banks?
This is without even a stirring in the housing market. Imagine how bad things will get if and when the housing bubble bursts!
Labor party, go to the election with a policy of breaking up the banks into their constituent parts, so that retail banking is separated totally from the other parts, and then make it policy that only the retail banks will be covered by government guarantee.
I don’t want the taxpayer to be picking up this mess, but if they do, it had better be with equity. We may live to see the banks all nationalised again, but not the old-fashioned way.
Good news, DB…The Labor party has got the courage to have a Royal Commission into the financial sector, including the banks, if they win the election.
It has been announced by Bill Shorten this afternoon.
Of course, the government are accusing the Labor party of everything they can think of, but I suspect this will be a very popular move in the community.
Not before time!
Shorting the banks is an obvious, but incredibly risky proposition. While it’s obvious they’re all insolvent and going to have a complete meltdown, it’s impossible to know when as the entire country will be sacrificed to maintain the charade.
At a personal level I’m just glad I have an escape plan and multiple citizenships.
Plus, of course, nobody in the two big slavishly neoliberal parties will have the stones to “pull an Iceland”, reset the whole thing, send bankers to gaol and re-regulate the banking system with an iron fist. Instead they’ll do an “Irish Job” and saddle us with trillions worth of mortgage debt while waving off the culprits as the move on to the next country to destroy.
Here’s an idea. Stand up a new national bank using Aus Post.
Limit it to offering only basic, essential services: savings/transactions accounts, term deposits and simple, fixed-rate P&I mortgages for people buying a PPoR. Enforce strict mortgage lending criteria requiring at least an 80% LVR and minimum payments no more than 50% of a single income for dual-income homes, or 30% of income for single-income homes. Require anyone operating an ATM to provide fee-free access to transaction accounts at this bank. Mandate that Government payments (pension, dole, etc) can ONLY be made into a transaction account at this bank.
No account fees. No personal loans. No business loans. No credit cards (for convenience, mastercard/visa compatible debit/paywave cards are OK). No investment mortgages. No interest-only mortgages. No offset accounts (redraw is OK). No foreign currency accounts (but no premium or commission on foreign currency transactions). No life insurance. No financial planning. No SMSFs (outside of a simple term deposit account). EVER. Write these rules into the legislation. Make it as hard as humanly possible within the constraints of our system to change or pervert that legislation.
Announce that two years hence this will be the ONLY bank with a Government deposit guarantee.
Stand back and let Mr. Market sort out the private banking sector.