Wednesday, 10 July 2013

Soulsearching Bankers

Perhaps it is the slight break in market conditions which allowed the heads of Australia's banking sector to share their great wisdom as to the shape of things finance in Australia.

First up, preferred financier to Mexican drug cartels, HSBC:
HSBC group chief executive Stuart Gulliver has heaped praise on Australia's banking sector, arguing that Britain could have avoided having to rescue its ailing banks if it had emulated Australia's four pillars bank policy, according to The Australian Financial Review. 
Well he would say that, being under seige and seeing a half decent banking still working after all.  Further:
“Your banks are actually very profitable and therefore, as a society, you are ex-ante providing for financial crises by allowing your banks to make very high returns so the taxpayer should never have to touch them,” Mr Gulliver said, according to the AFR(here)
Hogwash! True on the latest figures but for how long? And have all major risks been accounted for in that statement? The few and big view of banking is an argument which is being dismantled by the Chinese banking system (whose banks love to finance empty cities and lots of copper sitting in warehouses).  As has been noted here and elsewhere Australian banking is not competitive and consumers are worse off from the lack of competition.  Cue one of the major banks to defend the indefensible:

Westpac’s (ASX: WBC) CEO Gail Kelly has argued that the retail banking market is still competitive, despite Australia’s big four banks writing nearly 90% of all new mortgages.
With credit growth sitting at around 3% and running on par with GDP rates (compared to around 11% or 12% growth pre-GFC), Kelly told The Australian Financial Review that “on mortgages it is a competitive sector… that’s because it is such a low growth arena and has been for some period of time”.
Her comments came in retaliation to HSBC Australia’s chief, Tony Cripps, who last month said that “if you look at the retail space, the major banks hold about 90% of the mortgage market, so there’s obviously not much competition there”. (here)
Wrong on so many levels!  Last thing I recall from Gail Kelly she was defending why her rates were so high (remember the video about the smoothie stall and the cost of wholesale funding/bananas?!).  Putting that to one side did you spot the gem from HSBC's Tony Cripps contradicting his boss that in fact there isn't much competition and that's a bad thing?! (Stuart!).

It's not that others didn't try and have a go.  In its statements upon exiting a poor investment in Australia, there is a sense of the difficulty for newcomers to break into the market or at least have a go:
Lloyds has had a torrid experience in Australia, where it inherited a significant operation through its ill-fated takeover of UK rival HBOS at the height of the financial crisis...While most Australian banking operations have thrived in recent years, the Lloyds unit has racked up losses. One person familiar with the unit recently told the Financial Times that aggregate losses in Australia were £3bn, equivalent to a fifth of its original book of business.(here
As it happens, like their peers around the world Australia's banks face liquidity and solvency challenges, but are likely to be rendered obselete by technology.

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