Rivals Snuffed Out, Big Banks Are Laughing

Rivals Snuffed Out, Big Banks Are Laughing

The Sunday Age
17 August 2008
James Kirby

IS IT a coincidence that "Aussie John" Symond has announced he's giving up the day job at Aussie Home Loans just as the Reserve Bank reveals the big banks have recaptured the home loan market?

Figures show the banks now have 90% of all new mortgages. Devastated by the credit crisis, the non-banks once led by Aussie Home Loans, Rams and Wizard, have lost almost everything they clawed from the "big four" in the past decade. In fact, we are back to where we were in 1994.

No wonder the banks are ignoring Treasurer Wayne Swan's call to act swiftly on any chance to cut interest rates. Why bother! The credit crisis has flattened the competition.

When Symond (now chairman rather than chief executive of Aussie Home Loans) began his admirable onslaught on the banking industry in the early 1990s, there were at least 10 regional banks to keep the banks honest. There are just three independent regional banks left: BankWest, (the newly created) Bendigo and Adelaide Bank and Bank of Queensland.

At their peak about two years ago, the non-banks had up to 20% of the mortgage market. Goodbye to all that. The drop to 10% is almost completely represented by the shrinkage in market share of non-banks; the residual activity is largely taken up by credit unions.

It's bad news for customers, but it should be good news for bank shareholders.

Westpac's trading update a few days ago showed that though overall lending volumes were slowing down, Westpac was growing its mortgage business book faster than so-called "system growth".

Similarly, Commonwealth Bank, which came out with an "on target" result and, crucially, maintained its dividend, showed a bank going from strength to strength.

But one thing has changed in this resurgence, the "big four" - ANZ, Commonwealth Bank, NAB and Westpac - may soon include "the better two" and, unfortunately for Melbourne, the two winners - Commonwealth and Westpac - are based in Sydney.

Though the headlines might suggest it is NAB that has fared worse recently, with its massive write-downs of American securities, in fact it is the accident-plagued ANZ staggering from the wreckage of the debacles at financial companies Chimera Capital and Opes Prime that is most obviously struggling.

ANZ's newish chief executive, Mike Smith, may rue putting all his cards on the table in what now looks like a naive public strategy to become an Asia-focused bank. As Andrew Dickinson, banking partner at KPMG, explains: "Banks with overseas operations are now seen as more risky than domestically focused local rivals." ANZ is the cheapest of the big banks on the stockmarket.

The other bank with overseas operations is NAB, which has a British business and some operations in the US. NAB also has an untested new chief executive in Cameron Clyne. NAB is the second-cheapest big bank on the stockmarket.

Meanwhile, if you look at the "better two", Westpac's stock price is up 30% in a month and Commonwealth has the highest stock rating of any bank in the market.

kirbyjourno@hotmail.com

Credit crisis . . . what credit crisis?

? Banks have improved profit margins by 30% in the past six months.

? The major banks have increased market share every quarter since the subprime crisis erupted in August. ? They are now writing more than four out of five new home loans. For the previous five years their market share had been falling.

? Profit among the major banks increased by more than 12% in the first half of 2007-08.

? Credit card fees have risen 170% in the past five years.

? In the six years to 2007, return on equity was higher than overseas banks.

? While petrol prices jumped 8.7% in the three months to June, bank charges soared 9.5%.

? Australian banks charge higher exit fees than their counterparts in Britain and the US.

? The cost of funding long-term debt has fallen more than one percentage point since September.

SOURCE: DEPARTMENT OF TREASURY, INFOCHOICE, AUSTRALIAN BUREAU OF STATISTICS, MWE CONSULTING, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

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