Westpac profit? $5.9billion. Seeing a Fat Cat banker retreat? Priceless!

Given I opened the door last week on interest rate increases beyond the Reserve Bank rate rises, we may as well follow the herd and continue a little longer.

There was an interesting tweet (that damn Twitter again) on Sky News this morning suggesting; Isn’t Joe Hockey biting the hand that feeds him, given the bulk of his personal wealth has been built on the back of his wife’s million dollar plus banking salary?

Fair call, but also there is an element of the entire GFC being captured in this sound bite, “Hypocritical politicians and overpaid people in the finance industry”.

Many a true word said in jest, or just my socialist ancestry coming to the fore?

Coming back to the facts for a moment, in November 2007 the margin the banks were charging over the Reserve Bank rates was around 1.8%; prior to the increase from the Commonwealth Bank that margin had increased to around 2.7%. If the current increase holds and the other major banks join in, that margin will be 2.9%.

The banks will argue that this is all due to the international cost of funds rising, i.e. their wholesale prices. This is a smoke and mirrors argument that varies from bank to bank and depends on what weighting of their funds is from local sources and offshore sources. A recent average wholesale cost of funds completed following the release of the four major banks annual results showed this cost had actually only increased by .11% over the last 12 months.

Again this will vary from bank to bank, but the reoccurring theme is that of a cost plus mentality and gouging as much as possible from the margins. I wish all SMEs could simply push up their prices regardless of competition every time there was a cost increase. Recent activity simply indicates to the Wrinkle, that as the banks were caught out on gouging people with overpriced fees, they are now trying to regain that revenue from expanding their core margins and then some. May as well take the PR hit and be hung for a sheep rather than a lamb.

Westpac is now reputed to be not just the most profitable bank in Australia, but in the world. All the major Australian banks are reporting exceptional profits which is always a layman’s indication of not enough competition.

If the government is serious about fixing this they will need to take some positive action this time around, rather than lip service such as vague comments about tightening regulation and the power of ACCC. Not one to be shy, the Wrinkle has a few suggestions;

• Ban exit fees on mortgages, and rebate all government fees and charges in relation to mortgage changes on existing assets. Allow people a real cost free option to change funding easily.
• Support the real people’s bank, Credit unions (there’s that socialist throwback again) with favourable concessions
• If necessary do what the Kiwi’s did, and give the Post Shop’s a banking licence. The current CEO already has extensive expertise in the banking sector
• Make the provision of the government guarantee scheme on deposits discretionary.

This will be the first real test of whether or not Wayne Swan has the courage to back up his rhetoric with real action. A great test to determine the tone of the new government, the next month should be interesting.

The banks have gone a step too far this time, but will they retreat? The Wrinkle is always a little cynical when it comes to bankers and lawyers, my guess would be;

Seeing a fat cat banker retreat, fat rat’s chance. Or as the Mastercard ads go, "priceless!".

Have a good week.