TE-BO: Budget 2014 – Banks – they deserve to pay more for the Government Guarantee …

TE-BO: Budget 2014 – Banks – they deserve to pay more for the Government Guarantee  …
| Author: TE-BO – The Eye-Ball Opinion| Date: May 6th, 2014 |


the-eyeball-opinion6The Major Banks are amid their half-year reporting period.  The ANZ announced a $3.7 billion profit against a forecast $3.5, WBC announced today a $3.77 billion profit against forecast of $3.64 billion, and the NAB announced their half-year result at $3.5 billion against a forecast at $3.2 billion.  The CBA reports mid year.

Collectively the major banks have reported $20-$25 billion p/a profits over the last few years – this against the GFC impact and when stacked up against all other industries, apart from sections of the mining and resource industries, the Banks have demonstrated they literally do have a license to print money.

WBC boss Gail Kelly came out today in defense of Bank margins and how they will fight to keep their margins are current levels.  Read story below:

The Australian LogoWestpac boss Gail Kelly tips rise in credit growth
| Author: MICHAEL BENNET | Date: May 6th, 2014| Link to On-Line Story. |


WESTPAC chief executive Gail Kelly has pledged to defend mortgage margins and not relax lending standards amid hot competition, as the nation’s second largest bank starts to flex its muscles ahead of a likely pick-up in ­demand.

Continuing the banks’ run of record earnings, Westpac yesterday posted an 8 per cent surge in cash profit to $3.77 billion for the six months to March 31, topping analysts’ expectations of $3.64bn. While losses from soured loans fell to the lowest level in 14 years, Westpac also delivered stronger than expected net operating income of $9.8bn.

Analysts applauded the result, despite some disappointment Westpac failed to hand shareholders another special dividend as the bank finalises how much tier one capital to hold. It stands at 8.82 per cent at present.

ANZ, which last week posted a cash profit of $3.5bn, has targeted a tier one capital range of 8.5-9 per cent as the big four banks, deemed systemically important, brace for new rules requiring them hold at least 8 per cent of tier one capital by 2016.

Westpac’s interim dividend of 90c was as expected. Despite the caution on its capital and the bank raising provisions for loans to the manufacturing sector, Mrs Kelly was upbeat about a “gradual” improvement in the economy this year. She said housing construction would provide a boost, the global economy had improved and the market already expected a tough budget to be handed down next week.

Mrs Kelly said she expected a broad rise in demand for credit, tipping mortgage growth of 7 per cent this year compared with 5.5 per cent last year and demand from businesses to nearly double to about 4 per cent.

By contrast, ANZ Bank chief Mike Smith last week warned business confidence was recovering more slowly than expected and competition was placing pressure on margins.

“(Overall) credit growth last year, the calendar year, was a little under 4 per cent and we expect credit growth for 2014 to come in at around 6 per cent, so that’s telling you there’s something of a pick-up,” Mrs Kelly said.

Westpac has moved to halt market share losses in the $1.3 trillion mortgage market by getting lending up to the same level as “system growth”, or the pace of overall demand.

In the March quarter, the bank’s Australian Financial Services (AFS) division run by Brian Hartzer almost hit the target, growing mortgages 0.9 times system growth.

Westpac has the highest advertised variable mortgage rate of the big four banks and has resisted lowering it, boosting margins on its “back book” of existing customers.

The bank has been offering discounts to entice new customers.

“In November of last year I indicated our goal to work towards achieving system growth during the course of 2014 on mortgage growth, but to do that in a sustainable way,” Mrs Kelly said. “We’ve done that while maintaining really excellent credit quality and indeed managing the margin tightly.

“Brian and his team are aiming at achieving system growth for the second half of 2014.”

Westpac’s net interest margin declined one basis point in the past six months to 2.11 per cent, largely due to pressure from institutional banking and New Zealand.

While the AFS unit increased margins by two basis points, chief financial officer Peter King conceded the gain was due to the sharp fall in funding costs, which offset hot competition to write mortgages and a rise in lower-earning fixed rate home loans.

“It was a pretty solid and clean result. The issue is the margin pressure on the asset side amid growing competition,” said Chris Hall, senior investment officer at Argo Investments.

“People are also thinking how much lower bad and doubtful debt charges can go.

“They’re all chasing after the same part of the market and it’s not just pricing, but potentially a bit of a relaxation of credit standards, so you have to try and determine who’s doing what in the market from a behavioural standpoint.”

Westpac shares, which have been trading near record highs, fell 1.2 per cent to $34.45. ANZ and NAB were also down more than 1 per cent.


The Government gave the Banks a big boost when they issued additional investor guarantees when the GFC first hit.  [These 2008 additional guarantees can be read further at this link –  all Bank guarantees in existence can be read here.]

Banks have increase their profitability every year since the GFC, and much of this is due to the guarantees issues by the RBA and the Government.

Treasurer Hockey should review the cost the Banks pay for this guarantee structure as a part of his Budget crisis review. There is no doubt the guarantee impacts and improves the Banks profitability and their international credit rating.  This allows the Banks to borrow at cheaper rates and increases their profitability as a direct result.   Take away the guarantee and the Banks profitability would fall significantly.  Why should the Banks have a privileged status and grow their shareholder returns at the expense of the budget measures that will impact of all Australians?

The Federal Government went after the miners with a ‘super profits tax’, why not the Banks?

[…EYE-BALL…]Gratuity

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This entry was posted by TE-BO - [The EYE-BALL Opinion].

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