Can you see banks raising interest rates?

[Intrinsic_Value]

No they're not, they are the "final final" profit figures after all expenses have been taken out, all of the write-downs taken off....and everything else under the sun taken off. They are the ultimate reward for many tens of thousands of workers feverishly beavering away under strict and regimented business goals.

They are feasted upon by both the ATO and the shareholders, many of which rely on them for their living expenses.




If you are truly interested, you'll do the same as anyone else in the community, look up their annual reports. It's all freely available at no cost to yourself.

Your 3 banal questions are like a rusty blunt spoon, and do nothing to disect the farce of Banks bleating that "funding costs" are hurting.

again you are showing your naivety.

Yes they are just numbers, because without having some points of comparison, they are just that a number.

And PT Bears 3 questions are not 'banal' at all, they provide the essential high level insight into questioning the Banks bleating on funding costs.

 

[oracle]

and how big are these companies, CBA for starters has a market cap of $78 billion. So lets see profit of $6.3billion divided by market cap of $78billion equals an earnings yield of 8%. Pretty much on par with some forms of commercial property.

Ah but thats market cap i hear you saying (ie what the market is prepared to pay for this business), what about owners equity (ie shareholders actual equity, not share price x shares on issue)? Well share holders equity is $37 billion. That improved the underlying earnings yield on the business from 8% to 17%.

One other thing that ppl usually take for granted is the use of owner's equity in a business. In a true capitalist world, I would expect shareholders to charge companies interest for using their money which comes out of their profits. Once the companies pays it's shareholders interest on it's money their ROA and ROE would be even lower.

Just like you expect to earn interest whenever you lend your money say to a bank or buy bonds, etc.

So coming back to CBA example. If shareholder demanded a modest 4% interest on their money that would be 4% of $38B (equity) = $1.52B

Assuming 30% tax rate that would reduce CBA's profit from $6.4B to $5.33B

I hear you say, but shareholders shouldn't be paid any interest as they are entitled to companies future profits. I would say that is the reward/return they get for the risk they take of losing their capital when company goes bankrupt. So it's fair risk/return scenario. But in the mean time I believe they are perfectly justified to demand interest on the money they lend to the company, which the company uses free of charge while it goes about doing it normal business.

Cheers,
Oracle.

 

[DEC]

ANZ and Westpac raise variable rates

http://www.smh.com.au/business/anz-westpac-lift-mortgage-rates-20120210-1sflr.html

And ANZ drop fixed

Media Release
For Release: 10 February 2012
ANZ February 2012 Interest Rate Review
- variable rates for mortgages and small business increase by 0.06%pa;
three year fixed rate mortgage cut by 0.15% to 5.99%pa -
ANZ today announced it will increase interest rates for variable rate mortgages and small
business lending by 0.06%pa while reducing the three year fixed rate package mortgage by 0.15%pa maintaining competitive interest rates for customers.

ANZ will cut its three year fixed rate mortgage by 0.15% to 5.99%pa as part of its
Breakfree banking package. ANZ’s Breakfree package currently provides the lowest fixed
rates of the major banks across two, three, four and five year terms.

 

[Intrinsic_Value]

One other thing that ppl usually take for granted is the use of owner's equity in a business. In a true capitalist world, I would expect shareholders to charge companies interest for using their money which comes out of their profits. Once the companies pays it's shareholders interest on it's money their ROA and ROE would be even lower.

Just like you expect to earn interest whenever you lend your money say to a bank or buy bonds, etc.

So coming back to CBA example. If shareholder demanded a modest 4% interest on their money that would be 4% of $38B (equity) = $1.52B

Assuming 30% tax rate that would reduce CBA's profit from $6.4B to $5.33B

I hear you say, but shareholders shouldn't be paid any interest as they are entitled to companies future profits. I would say that is the reward/return they get for the risk they take of losing their capital when company goes bankrupt. So it's fair risk/return scenario. But in the mean time I believe they are perfectly justified to demand interest on the money they lend to the company, which the company uses free of charge while it goes about doing it normal business.

Cheers,
Oracle.

you have just hit the nail on the head about 'ownership' required returns.

Your comment is the 'soup base' upon which all Buffett's investment thesis is based.

Well done for highlighting it

 

[Dazz]

No they're not....

Yes they are.

3 banal questions

3 questions are not 'banal'

again you are showing your naivety.

No I'm not - quite the reverse in fact.


You know, I'm detecting a sense that we disagree. Excellent !!

 

[buzzlightyear]

You did, but this was pre-GFC times, when the banks were happy to lend at rates closer to the RBA rate, especially with securitisation. Securitisation was great for lowering the spreads. Unfortunately people have woken up to the risks of this.

So bank costs were falling pre-GFC and the banks were happy to simply move interest rates in line with the RBA movements? Things that make you go hmmm...

 

[wobbycarly]

I reckon ANZ had to do something this month, with the RBA holding. If they didn't, then their recent 'campaign' to show they are "splitting up with the RBA" (my words, and I don't work in advertising ) would have been seen to all talk and no action.

This action shows they are willing to walk the walk, and they are TOUGH, and going their own way.

The 0.06% is 2/5 of 5/8 of stuff all in the scheme of things, but is enough to send the message they wanted to. And $50m extra to the bank - their extra profit according to the paper - is petty cash (a rounding error, as Terry McCrann would say).

 

[Sunfish]

So bank costs were falling pre-GFC and the banks were happy to simply move interest rates in line with the RBA movements? Things that make you go hmmm...

Like you, I can't remember the banks saying their cost of funding WASN'T rising that quickly so they didn't need to pass it all on.

 

[Rolf Latham]

I reckon ANZ had to do something this month, with the RBA holding. If they didn't, then their recent 'campaign' to show they are "splitting up with the RBA" (my words, and I don't work in advertising ) would have been seen to all talk and no action.

This action shows they are willing to walk the walk, and they are TOUGH, and going their own way.

The 0.06% is 2/5 of 5/8 of stuff all in the scheme of things, but is enough to send the message they wanted to. And $50m extra to the bank - their extra profit according to the paper - is petty cash (a rounding error, as Terry McCrann would say).

im grateful for the free advertising for my business


so much spin doctor dust, makes makes for a storm in a tea cup in reality, but places great doubt in people's mind, so much doubt that they look to move.........

ta
rolf

 

[Aaron_C]

Probably a lot of refinance opportunities out there for disgruntled ANZ customers (myself included )

 

[tess85]

Probably a lot of refinance opportunities out there for disgruntled ANZ customers (myself included )

Interesting, I'm with WBC and I'm thinking of switching to ANZ... they have a good 3 year fixed rate going (5.99% for 3 years...) Am I crazy?

Edit: Just checked the WBC fixed rate again and it's only 6.19% if you have a pro package with them (which I have) so probably not worth doing all the paperwork to move the loans over.....

 

[devank]

May be removing the exit fees changed the game. May be that is why there are offering better 3 year fixed rate so that we can't move easily.

 

[Aaron_C]

Interesting, I'm with WBC and I'm thinking of switching to ANZ... they have a good 3 year fixed rate going (5.99% for 3 years...) Am I crazy?

Edit: Just checked the WBC fixed rate again and it's only 6.19% if you have a pro package with them (which I have) so probably not worth doing all the paperwork to move the loans over.....

Only if you want to moved to a fixed rate. I personally have never liked them, no matter what bank it is.

 

[Rolf Latham]

May be removing the exit fees changed the game. May be that is why there are offering better 3 year fixed rate so that we can't move easily.

Hi DK

In most cases DEFs were only 700 or so.

Grantedt, the occasional non bank was a joke at 2 % or more, but they had a small market share

ta
rolf

 

[Intrinsic_Value]

So bank costs were falling pre-GFC and the banks were happy to simply move interest rates in line with the RBA movements? Things that make you go hmmm...

no but borrowers did get discounts to the 'standard variable rate'.
How many borrowers got a discount 15 years ago,
How many borrowers got a discount now?

Consider also the proliferation of the mortgage broker industry over the last 15 years. They also got their cut.

 

[BMan]

Interesting, I'm with WBC and I'm thinking of switching to ANZ... they have a good 3 year fixed rate going (5.99% for 3 years...) Am I crazy?

Edit: Just checked the WBC fixed rate again and it's only 6.19% if you have a pro package with them (which I have) so probably not worth doing all the paperwork to move the loans over.....

And ANZ drop fixed

wow it works....
anz are smart
raise normal rates
so 1 people start locking into fixed rates
they then lower fixed rates so people move to them and lock in and they lock in a heap of customers
fix customers are going to better variable ones that can move at any time
sounds like a win win for them

 

[mech81]

Love reading a thread like this. About banks profits and all, does anybody know if Australian banks here practise any form of fractional reserve banking (or in other terms making money out of thin air)? This practise was/?is rife in the US of A up to the GFC and allowed them to multiply their profits greatly. I heard the ratio used was initially 5:1 which increased to 10:1 just pre-GFC

http://en.wikipedia.org/wiki/Fractional_reserve_banking

 

[bdc]

If anyone here actually understood how money works the numbers are simply staggering because they are literally creating that money out of thin air and charging you for it....now which other business can do that?

This is the issue I have with people trying to apply usual business accounting to banks to decide if they are being unfair.

Banks really shouldn't be compared to other businesses because no other business gets to do what they do, and other businesses are risking their own money not depositors/taxpayer (as we know that is what would happen) money.

But I'm sure I would be in the very small minority on these forums as I believe that the CBA should never have been sold, and I would personally like to see the gov get back into banking.

 

[Trogdor]

Love reading a thread like this. About banks profits and all, does anybody know if Australian banks here practise any form of fractional reserve banking (or in other terms making money out of thin air)? This practise was/?is rife in the US of A up to the GFC and allowed them to multiply their profits greatly. I heard the ratio used was initially 5:1 which increased to 10:1 just pre-GFC

http://en.wikipedia.org/wiki/Fractional_reserve_banking

http://www.apra.gov.au/adi/PrudentialFramework/Pages/Basel-III-Capital-Reforms-September-2011.aspx

http://www.ey.com/AU/en/Newsroom/News-releases/Basel-III-impact-for-Australian-banks

http://www.pwc.com.au/industry/financial-services-regulation/basel.htm

etc...

 

[Rolf Latham]

I believe that the CBA should never have been sold, and I would personally like to see the gov get back into banking.

I don't think that would put you into a minority per se.

My view is obviously different. The government has trouble running its books on a normal basis, and should stick to its core business.

In my view that applies both on a state and federal level. When governments start meddling in free-market processes, beyond cash handouts (example first home owners grant) reality no longer applies.

Ta

Rolf