Monday, November 01, 2010

Bank wars. Hockey's winning

ANZ chief Mike Smith has broadened his attack on Liberal Treasury Spokesman Joe Hockey saying his concern about the Shadow Treasurer relates not so much to "the bank as the overall economy".

"The success of the Australian economy over the last 20 years really is a credit to the reform agenda that has been driven by successive governments," he told the ABC.

"This idea of actually imposing an interest rate regime, looking at further regulating the banking industry, would take it back to an era that has long since gone."

Challenged on Inside Business as to whether Mr Hockey had ever actually proposed directly controlling interest rates, Mr Smith said, "I heard him say it. He said it pretty clearly."

"And then he came out with this plan and whatever. It was all rather strange stuff and it was just very anti-reform."

Mr Smith is a former Asian and global head of the Hongkong and Shanghai Banking Corporation and moved to Australia to become ANZ chief executive in 2007...

Detailing an "Asian strategy, our push into being a super regional bank," he said the ANZ's expansion plans would help Australia by bringing it "far more liquidity from Asia".

Mr Hockey told Channel Nine the ANZ was one of the banks that caused him concern.

"The reality is ANZ, the Commonwealth Bank and basically any financial institution in Australia is not going to fall over because of taxpayer support. The question therefore is how much profit and how much risk should they be taking in the future."

"I am not taking a backward step, nor are the Coalition."

He was inclined to oppose the deal between the Singapore and Australian Stock Exchanges because it was "not a merger, the Singapore Stock Exchange wants to take over the Australian exchange."

Speaking from Vietnam Prime Minister Gillard said she had discussed the bid with Singapore Prime Minister Lee Hsien Loong and would not comment on the proposal until it had been considered by the Foreign Investment Review Board.

Published in today's Age


Hockey's move should have been popular. It's also important. Australia has suffered a dramatic collapse in competition in the banking sector. The biggest five banks supplied less than 60 per cent of all mortgages in Australia before the global financial crisis.

That share - and with the Westpac takeover of St George the biggest five has become the big four - has now zoomed to over 80 per cent. The crisis took Aussie Home Loans, RAMS, Challenger and others out of the market. The big banks have tightened their grip on Australian home borrowers by default.

It's certainly not the brilliant low rates they're offering - a survey this week showed that the big four's average mortgage rate for home buyers is a full percentage point higher than the average rate on offer from other lenders.

There is a problem of competition in the Australian banking sector. The government has been puzzling over this problem. And Hockey was right to raise it. But how did it get so buggered up?

Partly it's Hockey's own fault through some bungled communications. Partly it's the successful misrepresentation of Hockey as trying to "re-regulate interest rates", which is not at all what he's proposing. He is proposing giving the ACCC some more power to prevent the banks colluding on interest rates. This is a pro-market reform, not an anti-market reform.

The banks don't like it, of course. But by accepting the government guarantees of their wholesale loans and their deposits during the financial crisis, they have already signed on to two vital redefinitions of the banking industry.

First, the crisis showed that the banks are not private risk-taking ventures but are wholly underwritten by the federal government. And second, that means they enjoy special privileged entitlements to the national public purse. That makes them quasi-public institutions. So they are obliged to consider the national interest, not just the interest of their shareholders. Sorry fellas.


There is no question that the Big Four banks have no one but themselves to blame for becoming the target of a new debate on regulation and competition. During the so called global financial crisis, they rushed to the Government for protection seeking deposit insurance from taxpayers. In turn they put the third-tier banks at risk by not passing on the guarantee. They are now going to reward taxpayers by putting up interest rates.

Banks want to be lightly regulated when it suits them but insured by the taxpayer when things get hairy. It's called individualising the profits and socialising the risk.

And Hockey is absolutely right to being putting the banks under scrutiny for this double standard. It wasn't so long ago that Labor was proposing the very same concept that Hockey is proposing now - a social charter to regulate the banks over what Labor claimed was an industry "profiteering" from the poor.

In fact the Treasurer himself was one of its proponents 10 years ago, after the Labor Opposition came up with the idea of a social compact which included things such as disclosure of ATM fees at time of withdrawal and low fee no-frill accounts.


“It really surprises me that some people in this party think we owe Westpac something, or the ANZ Bank, or the National. That really surprises me… If you want to start talking about equity and fairness you better start talking about unemployment but you can’t do it with a sick economy. Banking is the artery of the economy and we’ve had hardening of the arteries for too long in this country.”

Joe Hockey this morning? Err no. Try Paul Keating at the ALP National Conference in 1984...

Call me an old, bleeding-heart lefty, but when the CEO of a Bank that has just recorded a $4.2b after tax profit, starts calling you a communist, you know you’re on the right track...

The ALP should be owning this issue. The sooner they steal the lead on this and leave Hockey out to dry the better. Because if they don’t, very quickly they’re going to find that others have woken up to the fact that Hockey is talking sense, and they’re looking like being on the side of the 4.2 billion dollar man.


WATCHING the ANZ Bank chief Mike Smith on television attacking Joe Hockey, it was just about impossible not to take the shadow treasurer's side.

I've never met Smith. For all I know he's a great bloke. But he came across as rich, arrogant, pompous and self-satisfied. The banker from central casting.

He could not have done more to help Hockey's anti-bank case if he had tried...

Hockey focused on banking specifically because of reports the big four intended to raise home loan rates out of synch with movements in official cash rates set by the Reserve Bank.

Where did those reports come from? From the big bosses of banking themselves.

Why supposedly clever people would think it a good idea to feed out that kind of information at the very time they were about to announce record profits ($4.5 billion in the case of Smith's ANZ) is hard to fathom.


Hockey worries that with the bank guarantee in place, the state is effectively underwriting potentially risky, profit-seeking expansions by bank chief executives without adequate public debate.

It's a fair point.

ANZ's chief executive Mike Smith slapped Hockey down on Thursday, snarling that he didn't see what all the fuss was about. Let me enlighten him. His bank posted a 33 per cent jump in profits, to $5 billion.

Yet the banks continue to claim they need to lift interest rates more than Reserve Bank adjustments to the cash rate because they are under financial strain.

Our big four banks are looking at potentially risky overseas expansions, yet the taxpayer is effectively underwriting any risk because of the presence of implicit and explicit bank guarantees.

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