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.

The elusive banking culture

Watchers of the UK financial system will have noted the new head of global giant Barclays Bank in London recently attempting to draw a line under all of the recent scandals by launching the bank's renovated set of values (here).  Its peer HSBC, was more pragmatic in the US when confronted with money laundering charges and was able to argue it was too systemically important, or too big to fail (here).

Throughout the various scandals of the last few years has been the understanding that not only were banks and their stakeholders let down by individuals, but there was a systematic culture which favoured profit and criminality over ethical behaviour.

In comparison the last few years have been favourable to the Australian sector, with few scandals on an industry wide scale.  A recent case involving the Commonwealth Bank (here) has shed some light, but also attracting attention is perennial outperformer Macquarie (the millionaires' factory).  

Reviewing the recent press about the activities of the holey dollar's private wealth division show all the similar signs.  Not only were there compliance failures leading to the resignation of the head of division, but a flawed culture:

....this is a big deal. Macquarie Private Wealth is the largest full-service stockbroker in Australia. The findings of the internal audit by the adviser services unit were that some 365 advisers of the 420-strong team coast to coast were in breach of compliance....Though the number itself is big, the bigger deal is what the regulator's investigations say about that elusive yet critical aspect of the corporation, culture....In contrast to previous ASIC ''enforceable undertakings'' penalties - which mostly pertained to individual rogue activities - the Macquarie action is squarely aimed at management....

...Macquarie Private Wealth is a marginal proposition economically. If deal-flow rises and capital markets return to full swing, this regulatory nightmare may drift away.....(here)

The bankers will be hoping for rising deal flow, but so far no encouraging signs on the deeper issues.