Thursday, December 03, 2009

$230 million payday for Westpac? It hopes.

Another estimate puts the potential payday at $400 million

Westpac's audacious decision to almost double this month's Reserve Bank's rate hike stands to net it around an extra $230 million next financial year if it doesn't lose customers as a result.

The rough bank-of-the-envelope calculation from a banking analyst fills a vacuum created by Westpac itself whose group retail and business chief Peter Hanlon was yesterday unable to tell a radio interviewer how much the additional 0.20 point rate hike would make.

"It's just going to recoup our funding costs which as you know have increased quite dramatically," Mr Hanlon told Fairfax Radio. (3AW, Neil Mitchell) Asked to provide a dollar figure he said, "It depends on how many mortgages we write which is a hypothetical number."

Asked whether Westpac had done projections of its likely mortgage numbers, Mr Hanlon replied, "Not at the moment, no we haven't"....

Mr Hanlon later told the Age/Herald he was unable to confirm $230 million estimate or comment on anything that affected finances without breaching the Australian Securities Exchange rules.

"I am not trying to squib the isse. I get our internal lawyers all over us when I talk to the media about these things because the ASX are very, very strict on what we can and can't disclose," he said.

Each of the other big banks was prepared to let Westpac twist in the wind and absorb bad publicity for another day rather than jump in and announce their own rate moves as they usually the case within hours of a Reserve Bank hike.

The ANZ, which last month announced its decision within minutes of the Reserve Bank's Melbourne Cup Day hike will this month wait until later in the week.

Its chief executive Mike Smith said ahead of that hike he "would be reluctant right now to move beyond an official rate increase".

A decision by the ANZ, Commonwealth or National Australia Banks to pass on only the Reserve Bank's 0.25 percentage point hike rather than push up rates 0.45 points as had Westpac could expose Australia's second-biggest mortgage provider to an exodus of customers.

The Commonwealth Bank, Australia's biggest mortgage provider was already offering a standard variable rate 0.7 points lower than Westpac before Westpac's move.

If it pushed up its standard variable mortgage rate by just 0.25 points taking advantage of what is understood to be its lower funding costs it would be offering standard mortgages for 6.49 per cent compared to Westpac's 6.76 per cent.

Westpac's Peter Hanlon yesterday came close to inviting other banks to follow, telling an interviewer "all of the banks face exactly the same issue, we depend too much on overseas wholesale funding. All of the banks are in the same boat, but they'll obviously make their own decisions".

Treasurer Wayne Swan yesterday stepped up pressure on non bank lenders to stand in Westpac's way, reminding them that he this week difrected the Office of Financial Management to invest a further $8 billion in their mortgage baked securities.

"That's why I recently authorized the $8 billion," he said. "So they can continue providing a competitive alternative."

Opposition Leader Tony Abbott said Westpac customers had a right to feel upset.

"I can understand why people are angry about this, I really can. I can understand why Westpac customers feel ripped off," he said. "But in the end this is the Government’s fault. Why did the Government decide to prop up the banks the way it did without getting some kind of leverage over them to prevent this kind of thing?"

The consumer group Choice agreed. "We warned of what might happen if Westpac was allowed to take over St George and Commonwealth was allowed to take over BankWest - the big banks would be freer to charge as they saw fit," said spokesman Christopher Zinn.

A new government scheme had made it easier to switch banks, but there would be little point in switching until the other lenders had declared their hands he said.

Westpac chief executive Gail Kelly remained unavailable for interview for the second consecutive day.

Her retail chief Peter Hanlon said Westpac customers were "obviously not happy," adding "I expected that".

Published in today's SMH and Age

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. Green light - Reserve gives banks the all-clear to nudge up rates

. Westpac's gutsy, greedy, ineptly-handled cash grab