MICHAEL WEST July 28, 2012
Lending money to my customers had made me realise that banking was actually quite a simple process: you just take people's money and then lend it out to other people, making sure you charge them more interest than you pay out. So I thought maybe I could open a tiny bank to serve the local community. Not a big bank but maybe a better bank. How hard could it be? - David Fishwick, CEO of the Bank of Dave.
loody hard,'' came the answer from Dave; once it came to red tape,
regulators and obtaining a licence.
Dave is a small businessman from Burnley in the UK who began lending the profits of his minibus business to make a point about banks. Now, spurred on to fame by community angst over the British banks, Dave has his own TV series.
The Brits, hopefully, will enjoy the ''relief rally'' in markets which tends to accompany the Olympic Games. Otherwise things are grim, much worse than here.
Across the ditch, the former boss of banking behemoth Citigroup was shooting the breeze in a TV interview this week when he casually observed the banks were too big and should be broken up.
They don't take much notice of calls for radical reform on Wall Street, unless they hail from an insider. Sandy Weill's comments went viral. Here was the architect of the 1998 uber-merger which turned Citi into a super-leveraged leviathan. Ten years hence, taxpayers bailed the bank out to the tune of $45 billion.
''We should have banks do something that's not going to risk the taxpayer dollars - that's not too big to fail,'' said Weill, now fabulously wealthy and underemployed but with the luxury of an independent view.
It was far bolder rhetoric than hithers from the insipid Obama regime, whose idea of economic management has been to watch the Federal Reserve prop up its Wall Street pals by printing money. Even now, the equity marketeers are more sanguine this week as the Fed dangles another round of QE (quantitative easing) before their eyes.
Still, as both parties in Washington are in turn propped up by Wall Street ''donations'', there is little prospect of respite.
Comparing bank sizes, Ian Narev down at the august Martin Place headquarters of the Commonwealth Bank might say to Citigroup, ''That's not a bank … this is a bank!''
CBA's market capitalisation is $89 billion. Citi's is just $75 billion. Swiss bank UBS is worth $40 billion and German giant Deutsche Bank tips the scales at a measly $26 billion.
The poor Big Four, ever besieged by brutally high borrowing costs and an environment which is unrelentingly ''tough'', will have made little more than $25 billion at the bottom line for the year just passed.
CBA, now the eighth biggest bank in the world by market value, is forecast to surpass $7 billion in net profits for the first time. In 2009 it was ranked 18. Per head of population, the big banks here are as powerful as any in the world.
Loathe to give a bank an even break, but we have to admit they have been superior corporate citizens, managing to skirt the sorts of losses and scandals which have beset their overseas counterparts - and they have largely kept out of investment banking while dutifully chipping out 7 per cent returns, keeping payout ratios high and grumbling about how terribly challenging things are.
Right now, and you can see it in the stock prices, they are creaming it. They might be bemoaning the dearth of credit growth, but margins - thanks to benign borrowing costs - are nice and fat.
But from a policy perspective Canberra still maintains its regime of banking apartheid. Though taxpayers implicitly stand behind all banks equally, the second tier banks are still forking out a higher fee than the big ones for sovereign guaranteed borrowings.
Yes, it is still going. Borrowings under the guarantee scheme stand at $90 billion or so, though there's patently less risk for Australian lenders than elsewhere, and though a banking inquiry recommended streamlining the scheme years ago.
The point is that smaller banks and their customers are still being penalised by fees of up to 20 basis points over the big banks. And this even as the big banks are giving Wayne Swan the bird, taking it in turns to shave off something from the Reserve Bank's latest interest rate cuts for themselves while kindly allowing the customer to reminisce about the days of full pass-through.
Mike Smith is even running around Asia looking to spend billions of ANZ's rich local mortgage profits on a big takeover. It would be interesting to know whether the Australian Prudential Regulation Authority had considered insisting that he keep aside a little more on the capital front - a la Basel - for the risk of blowing up overseas.
In any case, the sheer size and domination of the big banks poses a competition dilemma which is likely to turn into a nightmare for government at some point.
Only this week NAB snuck through a quiet 20 point rate hike for its small business customers. There is a price for a strong banking system with an elite few players. Competition is ever-so-subtly but inexorably being eroded away.