Friday, December 09, 2011

Bank by bank by bank by bank. How Swan won.

The Age
The standoff over home loan interest rates has ended, with Australia's big four banks finally yielding to political pressure and intervention by Treasurer Wayne Swan by passing on the Reserve Bank's 0.25 point cut.

After two days of silence from the big four - and a storm of public protest and indignation from the Treasurer - ANZ move first, announcing yesterday it would cut its standard variable home loan rate from 7.55 per cent to 7.30. Fellow Melbourne-based giant NAB followed quickly, dropping its standard rate to 7.22 per cent.

Mr Swan, who had already phoned executives at the banks to put his case, resorted to messages on Twitter, saying: "Heat just gone up another notch on Westpac and CBA."

Commonwealth fell into line late in the afternoon, and Westpac, which had the highest home rate before the controversy, yielded about 7.30pm after another tweet from the Treasurer: "Westpac customers deserve their bank to do the right thing as well."

ANZ, NAB and Westpac will also pass on the 0.25 point cut to business. The Commonwealth was considering its position.

But it was not all good news for borrowers, with the banks to continue charging the old rates until Monday week.

And ANZ, although it acted first to cut this time, has flagged a bid to escape the political pressure to pass on Reserve Bank moves in future... It says it will now review its rates on the second Friday of every month, regardless of whether the Reserve has moved.

The shift means that for ANZ's 700,000 customers, their interest rates could rise or fall even when the central bank has left official rates unchanged.

ANZ's Australian operations chief, Philip Chronican, said the public expectation that all official rate moves would be passed on had become ''dysfunctional''.

There were far more significant influences on bank costs than the Reserve cash rate, he said, and ANZ had long been planning to ''break the nexus'' between official changes and mortgage prices. ''We've all said it's a nexus that needs to be broken and we just thought it was about time somebody did something about it.''

UBS banking analyst Jonathan Mott, said ANZ's move would break the ''misconception'' about the link between the Reserve Bank and mortgage rates, and had the potential to make retail borrowing costs more volatile.

Westpac group executive Jason Yetton held out the prospect of an imminent rate hike should conditions deteriorate in Europe, saying the "unstable and deteriorating economic situation in Europe" posed significant risks.

"It is placing pressure on both the availability and cost of raising funds overseas to support mortgage and business lending in Australia."

The big banks return on equity is high compared to their counterparts overseas. The Commonwealth makes 19.5 per cent per year, NAB 15 per cent, Westpac 16 per cent and ANZ 15 per cent. US big banks make 5.7 per cent, British big banks 3.5 per cent and banks in mainland Europe 8 per cent.

Mr Swan has asked his business tax working group to report by the end of the year on the feasibility of introducing a tax on outsized returns on equity as part of a tradeoff that would cut corporate tax on ordinary profits to zero.

Published in today'sAge

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