Westpac the world's most profitable bank

[boomtown]

WESTPAC is the world's most profitable bank and Australia the most lucrative banking market, according to a new survey by Boston Consulting Group.

The report, entitled Living with New Realities, found that Westpac (wbc.ASX:Quote,News) was the only full-service commercial bank to generate a return on equity of more than 20 per cent last year.

The glowing report came as ratings agency Moody's said it was reviewing the "AA" credit ratings of the four major banks because of the worsening Australian economy.

"The outlook for the Australian economy continues to weaken," Moody's stated in a report. Peter of Sydney "Moody's will consider the potential impact on asset quality and earnings - and how this may affect Australian bank financial strength ratings."

With a return on equity of 20.4 per cent in 2008 Westpac was rivalled only by Spain's BBVA on 19.8 per cent.

Return on equity (ROE) is one of the leading measures of financial performance and gauges how well a company uses earnings from previous periods to produce more profits.

Australia's four major banks - NAB, CBA, ANZ and Westpac - delivered the biggest combined returns to shareholders along with Spanish banks.

The Australian and Spanish banking sectors generated composite ROEs of 16.5 per cent.

The next most profitable banks were in Canada.

While the Australian economy has deteriorated since the end of the 2008 financial year, local banks are being backed by the Rudd Government's funding guarantee announced late last year.

The guarantee effectively shifts some of the business risks associated with banking to Australian taxpayers.

The Boston Consulting findings are likely to be used to increase pressure on the government to get the banks to continue to pass on the benefits of official rate cuts to mortgage and business borrowers.

NAB boss Cameron Clyne and Commonwealth chief Ralph Norris have both cast doubt on the industry's ability to fully pass on future RBA rate cuts.

It will also add fuel to arguments put forward by the Finance Sector Union this week that banks have an obligation to abandon planned redundancy programs in light of the special support they are receiving from taxpayers.

"If banks take taxpayer support, they can accept some rules to protect taxpayers," said FSU spokesman Rod Masson.

"Banks are being uneven. They take taxpayer support with nothing in return."

Source: http://www.news.com.au/business/story/0,27753,25081465-462,00.html

 

[Aaron Sice]

if they get an AAA rating from Moody's, do they get a govt backed deposit guarantee as well?

 

[ziggy2214]

It will also add fuel to arguments put forward by the Finance Sector Union this week that banks have an obligation to abandon planned redundancy programs in light of the special support they are receiving from taxpayers.

"If banks take taxpayer support, they can accept some rules to protect taxpayers," said FSU spokesman Rod Masson.

"Banks are being uneven. They take taxpayer support with nothing in return."

I agree, when banks are very profitable the government has the responsibility to pressure them to act in a responsible manner.

IMO threatening to remove their deposit guarantee from any bank which is laying off staff is fair

 

[buzzlightyear]

if they get an AAA rating from Moody's, do they get a govt backed deposit guarantee as well?

After the Lehmann, Bear Stearns et al fiasco of last year, do ratings actually really mean anything today? (serious questions btw)

 

[Aaron Sice]

dunno - maybe not - but it would help their coffers and their share price if it did - might restore some positive sentiment to financials to know that thru the global turmoil, one bank got a rating UPGRADE.

 

[Ms Jade]

After the Lehmann, Bear Stearns et al fiasco of last year, do ratings actually really mean anything today? (serious questions btw)

I would be worried if Oz banks get down-graded in this market as they'll probably be paying more for funds (esp. long term funds). You know what that will mean for we minions...

 

[boz]

I would be worried if Oz banks get down-graded in this market as they'll probably be paying more for funds (esp. long term funds). You know what that will mean for we minions...

Doesn't matter that much as all new bonds released even by the big 4 banks are government backed, even with the present rating AUS banks are not able to get a reasonable yield on their bonds.

 

[contrary]

Well the Irish were one of the first to guarantee bank deposits in September last year. Who was to know it would be called so quickly and their government now saddled with debt 220% GDP with this and other silly guarantees and bailouts.

I reckon the Australian government are stuffed if the GFC runs for long enough to impair the banks here. What are they going to do when the banks are looking a bit shakey in 2 years time when the guarantee runs out?? Pulling it will result in the mother of bank runs and keeping it will mean they could be taking on a bit of debt, like the Irish, which depending on the eventual size may impair them. Hope Kevin is still around so he can write another essay on it. At least we will be well insulated (with 2.7B in free home insulation). Krudd

 

[contrary]

Source: http://www.news.com.au/business/story/0,27753,25081465-462,00.html
With a return on equity of 20.4 per cent in 2008 Westpac was rivalled only by Spain's BBVA on 19.8 per cent.

That's great. Westpac is slightly better than BBVA. BBVA (Spains second largest bank) is looking pretty stuffed as is most of Spains banking sector. I wonder how old the BC report is. Or is this from the same management consultants who took a year and 50m to come up with the BHP logo.

There is buckleys chance of moody's upgrading westpac to AAA!

http://business.maktoob.com/NewsDetails-20070423207593-Spains_BBVA_bank_profits_slump.htm

Spain's second largest bank BBVA said Wednesday its 2008 net profit fell 18.1 percent to 5.02 billion euros (6.5 billion dollars) after a deep slump in the fourth quarter as the global financial crisis hit.

For the three months to December, net profit tumbled to 519 million euros from the year-earlier 1.37 billion euros.

Analysts had expected net profits of 912 million euros for the quarter and 5.42 billion euros for the year.