Help Keep Banks Honest - please sign petition

[Spectre]

I understand where Stuart is coming from (I think - please feel free to correct me)

took st george 2 days to raise rates and 3 weeks to lower them

So obviously they're making a whap and as a consumer theres a bit of WTF

I will readily admit that I do have a concern that he'd be using the websites and petition for marketing purposes but at the same time if you fill it in then that is your decision if you click the link and do so.

But if he is arguing to get banks to be more transparent in their funding costs and business I dont know what success he'll have - mainly at the end of the day they are big business and if he rocked to hard they could shut him down overnight (much less any MB) but do think that probity in the lenders seems to be lacking. Then again they'll snow you with more info than you can digest which may constitue full disclosure.

All things being said, when I ask my bank guys about the funding costs and where it comes from and they dont know exactly...

 

[keithj]

If St George can delay a rate cuts by nearly one month (i.e. it's 0.30% doesn't kick in until 29 Sept), then this is telling me there's not enough competition. This time it’s one month. What happens next time?

If ALL the banks took a month to cut rates then I'd agree, however the big 4 & some minors are cutting within a week.... isn't that sufficient competition ?

There is next to no product innovation in Australian (compared to UK market) – another hallmark of low competition.

I'd be interested to know what product innovations the UK et al have.

 

[StuartW]

I guess we have some different opinions here and there.

I have said that the market is still competitive but that competition is heading in the wrong direction. St George is an example. Sure, its not too bad now and if that doesn't change then I'm not concerned. However, if the events over the past 6 months repeat themselves, the market might be in a very different position in 12, 24 months.

In regards to innovations in the UK market, for example, they have loans which are pegged to Swiss rates with a hedge - loan is still in pounds so foreign exchange risk is eliminated. Rates are significantly lower. This is only one example. The UK and US markets are more fragmented and this is much better for product innovation. You’ll find a whole lot of smaller lenders and they each have a niche – and they design specific products for that niche. In Australian, we really only have 5 to 7 different products with little variation.

Up until 3 years ago (or so), NAB didn't even have an interest only offset product. CBA still has its non-transactional offset (MISA).

I hope that the people deciding that they are comfortable with the Aussie market are aware of and compare our market to other markets. Of course, there are political, legal and cultural differences that you can never match but we can learn something from the UK and US.

In regards to this being a marketing tool, I have to admit I thought it was a good opportunity to advertise my book. However, it’s not the sole reason for doing this. Is this is a barrier to people signing the petition? If so, I consider taking it down because I don’t want to dilute the message.

 

[HiEquity]

Of course, there are political, legal and cultural differences that you can never match but we can learn something from the UK and US.

Like perhaps how it's a bad thing for governments to guarantee anything or interfere in the home loan market? Maybe it was just the non-recourse financing that got them but my take on this is that they could perhaps learn something from us given recent history...

I'd rather see less govt involvement rather than more (including the removal of the "four pillars" policy BTW). Govt intervention in these things would definitely be a cure worse than the disease IMO...

It's a good book by the way!

 

[Peter_Tersteeg]

If ALL the banks took a month to cut rates then I'd agree, however the big 4 & some minors are cutting within a week.... isn't that sufficient competition ?

I'm inclined to think that the larger lenders are simply moving this quickly to maintain their current advantage. If they don't, they'll loose a lot of ground in the media and public perceptions.

Over the last year the big 4 have gotten back a lot of market share as people have moved back to the perceived safety of the big 4. I definitely don't think that these lenders are enough competition within themselves and I point to brokers commission cuts as evidence.

Early this year, one lender cut commissions by 30%. They lost a lot of broker business as a result, but rather than reverse their decision, they opened the gates for other lenders to do the same. Since then almost every lender with decent credit capacity has followed suit.

In the same week they cut their commissions, they also raised their fixed and variable rates.

If there are only 4 serious lenders in the market, I guarantee you it will hurt the consumers. Over 6 to 12 months the lenders will adjust their rates and fees upwards in a series of small steps. Before deregulation, the banks were making over 3 times the margin on home loans that they are now.

I petition is a nice idea, but unfortunately I don't think it will make any difference, it's unlikely that it'll attract any real notice. The only way to send a real message is for customers to leave en-mass, but I don't really see that happening either.

 

[ianvestor]

Yes, that's it. Take down your book advertisements and I will happily help the government force the evil capitalists out of Australia and into countries where they are more welcome.

 

[pendo]

Another thing Stuart is that petitions are pretty ineffective.

I remember John Tingle Journo @ 2GB for years and now Upper House member in NSW, always banged on about the fact that petitions are useless, because they are read, noted, tabled, then filed.......end of story.

His solution, and it's still a good one, is to start a letter writing campaign to your local member. A letter received by your local member must be replied to.
If hundreds or thousands of letters are received by local members all over the country, not only does it put pressure on the local reps, to take it up, it also attracts media attention.

Petitions on the other hand place no pressure on anyone, and is largely seen, as in this case, a small sectional interest group, having a whinge.

 

[tubs]

Sorry Stuart, but I have to agree with Ian here.

The system we have in Aus is controlled capitalism, which prevents big businesses running wild over little ones. But we shouldnt be helping out the little guys at the expense of the big guys.

Imagine if you'd worked all your life to build up a really good business, for example in groceries (as per the previous example). Part of that was that you'd been able to put in place really good logistics and pricing structures. And then some new guy with a corner shop wanted access to all your logistics and pricing agreements so they could compete with you!

Not really fair is it.

This is business. If the smaller banks can't compete, then maybe they should be in another business. We shouldnt reward mediocrity. It's bad for capitalism.

 

[StuartW]

We shouldnt reward mediocrity. It's bad for capitalism.

Surely you are not suggesting smaller lenders are mediocre and larger lenders aren't?

In regards to petitions, I hear what you are saying. If I thought I could get a lot of people to write letters, I would try. Personally, I feel doing something is better than doing nothing.

 

[tubs]

I'm suggesting that we should be rewarding those that have done the hard yards to get to where they are, and not slapping them down by giving smaller competitors massive advantages to catch them up.

I'm also suggesting that small lenders that struggle to survive ARE mediocre. And those that thrive will catch up their competitors. We've seen lenders like the Bank of Melbourne, St George and the Bendigo do it in recent years, so I guess its possible.

75% of small businesses fail within 3 years. I dont see why we shouldn't let 'natural selection' take its course with the banks.

 

[Spectre]

This reminds me of when we had to do a research paper on Telstra - its market dominance in Australia, what Telstra's business really is, and of course what is in the public interest. (There its almost a case of defining what Telstra is not rather than what it is)

i.e. Is it the public interest for one lender to keep rates high while the others lower more quickly? on one hand, you have people unhappy about the rate situation, on the other you have shareholders happy their dividend will be higher (as well as the execs who may get a better bonus based on the higher profit - but that has been nothing new for ages and ages)

As its been noted people still have a choice of where to go and who to deal with.

 

[ianvestor]

Even if we only had one bank there'd still be choice, because if there were just one bank (with expensive rates), millionaires all over the country would be lining up to lend people money at more competitive rates.

Either that, or it would become viable to borrow from foreign banks instead. So if having 1 bank is hardly concerning, I'm certainly not going to complain about having 4.

 

[HiEquity]

I definitely don't think that these lenders are enough competition within themselves and I point to brokers commission cuts as evidence.

Hi PT. I know you're a broker and this is a forum mainly consisting of brokers so I'll try to be diplomatic... However I really don't see any good reason for Banks to support Brokers with good commissions or anything else. In a growing market, if a Bank decides that they can capture more market share through the use of Brokers then that's all great for the Brokers. In a contracting market, if that same Bank decides it can service its customers adequately with its own workforce and the Brokers aren't really adding any value, then why should they encourage them? If Brokers add value to the Bank they will be rewarded, if not they won't.

If the market turns around then it will be all good news for Brokers. For a Bank, Brokers should only be used to manage the work load so they don't have to hire and fire so much to keep up with the cycles. Bit hard to complain about it at the low point of the cycle...

Keep in mind that it's the customers (eg ME!) who actually pay those broker commissions!

If there are only 4 serious lenders in the market, I guarantee you it will hurt the consumers. Over 6 to 12 months the lenders will adjust their rates and fees upwards in a series of small steps. Before deregulation, the banks were making over 3 times the margin on home loans that they are now.

If the securitised lenders can compete they will - if they can't they will fall away. I'm sure they will reappear pretty quickly if there was money to be made and they provided value to consumers. That includes the possibility of the Banks further increasing their margins.

At the end of the day, there is only so much money available from deposit funds and the marginal price of money for home loans will be set by the cost of securitisation. The Banks can offer lower rates now because they have a bigger proportion of deposit monies there to use compared to the others. You could say they are therefore providing a "discount" to the real price of money as fully seen and passed on by the securitised lenders. They may well remove their discount but will be limited in their ability to do so not by the securitised lenders but by competition between themselves...

Should government intervene to enforce that discount? Not IMO - it's a competitive advantage of operating a diversified Bank of significant size. Govt interference with that won't make our economy anymore efficient - someone will still have to pay...

 

[StuartW]

Just because you have a source of funds, doesn't mean you'll be a successful lender - not even close. It's just one of many things you need. Therefore, helping lenders with a source of funding just gives them a chance – doesn’t guarantee they’ll survive by any stretch. Like tatslotto – just because you have a ticket, doesn’t mean you’ll win.

Also, it’s not about price. At the moment, it’s pretty black and white. If you have a AA rating, you can get money. If not, you can’t (or very tough). One of the reasons St George is keen to merge I'm sure.

Successful lenders in the past are struggling now because their oxygen supply has been cut (i.e. source of funding). If a perfectly fit person can’t breathe, do you just leave them to die? Or you help them get some oxygen so they can fight another day?

Small lenders can’t get funds, not because they are weak, poor credit, done something wrong, etc, etc. The fundamentals haven’t really changed. They can’t get funds no ones really lending.

 

[HiEquity]

Successful lenders in the past are struggling now because their oxygen supply has been cut (i.e. source of funding). If a perfectly fit person can’t breathe, do you just leave them to die? Or you help them get some oxygen so they can fight another day?

If their business model is fundamentally flawed and only successful in particular stages of the cycle, should governments step in to carry them through the other stages, regardless of how long or the costs involved? They knew the risks when the entered the market - if they don't have any contingency planning then they aren't perfectly fit...

 

[StuartW]

It’s not that black and white. What has happened hasn't happened for more than 80 years. It's not like small Aussie lenders had crazy lending practices like in the US. They haven't done anything wrong.

Do you believe in any government intervention anywhere? Tariffs, taxes, welfare, etc.? Should the UK government nationalised Northern Rock (bitten by credit market)? Should have the Fed Reserve help JP Morgan to buy (save) Bear Stearns?

Sometimes, the government needs to step in and equalise the market (so to speak) - there's more than interest rates at risk...

 

[Mr. Fabulous]

Hi Stuart,

I like competition just as much as the next guy, but I can't say I agree with your 'let's use taxpayers' money to bail out businesses that took a risk and are now going under'. If we demand they do that, then they should do it for every single person that starts up a business. It's not a viable option. The owners of these businesses took a punt and lost. Back to the drawing board.

Mark

 

[StuartW]

I am not proposing to use taxpayers money - we aren't bailing out anyone or anything. I want the government to “facilitate”. The RBA has done this already to some degree – we just need more.

Look at Freddie Mac and Fanny Mae - they are US listed companies with shareholders that do the same thing (established by US government). The RBA, APRA and ASIC are government entities that monitor and 'make' markets - the same thing.

Of course I am not suggesting the government give hand outs - just facilitate the smaller lenders to get access to the same pool of money.

 

[keithj]

..... just facilitate the smaller lenders to get access to the same pool of money.

Risk has been mispriced for much of the last cycle... and we know the outcome.....

...are you saying that higher risk smaller lenders should have access to the same funds as the more conservative ones ?

 

[StuartW]

No... I just want them to have access to funds... don't care about risk and price - of course XYZ Home Loans needs to pay more than a big 4. At the moment, the tap is off. Turn it back on.

Take a look at this detailed Melbourne Business School proposal to explain this more: www.keepbankshonest.com.au/MBS.pdf

If nothing else I have created a good “discussion”.

I am going to have to leave this discussion now... its eaten into way too much of my day.

Ian, the book ad has been taken down from website like you requested!