‘Moral hazard’ will prove lethal

‘Firing on all cylinders” was how Mike Smith framed it as he handed down ANZ’s $6.5 billion bell-ringer this week.
By · 2 Nov 2013
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2 Nov 2013
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‘Firing on all cylinders” was how Mike Smith framed it as he handed down ANZ’s $6.5 billion bell-ringer this week.

Have they dropped the Oliver Twist routine, our poor suffering banks? Is it not ‘‘tough out there’’ any more?

The rhetoric from National Australia Bank boss Cameron Clyne was more demure. The NAB’s 34 per cent lift in annual profits to $5.4 billion was ‘‘solid’’.

It was ‘‘pleasing’’ profits had climbed in light of ‘‘anaemic credit’’ growth, Clyne said.

Imagine what it will be like when lending picks up again.

Westpac will hand down another thumper on Monday. With the CBA SpyBank unveiling its $7.8 billion behemoth in August, the Big Four are on track for a collective bottom line of $27 billion.

All of this is terrific news for shareholders, such terrific news that the prudential regulator APRA has warned the banks not to fork out too much in dividends. They need something in the kick in case things do actually become tough.

This presents a conundrum. Dividends bring demand for bank shares; ergo, higher share prices and banker bonuses. As long as interest rates remain low, the party will continue. One thing you can count on is that there won’t be a price war.

The Big Four don’t compete on price. If they did, they could not logically belt out record profits year after year in a climate of weak credit growth.

It is akin to four restaurants, all in the same suburb, all offering the same cuisine at the same price. All doing a booming trade.

How or when the party will all end is anyone’s guess but the ‘‘moral hazard’’ will prove lethal. And the taxpayer will pick up the chit.

Emboldened by their success – and by their safety net care of the Reserve Bank’s bailout provisions – lending standards have nowhere to go but south.

Residential property is on the fly again. It has further to run. But one accident-in-waiting lies in the self-managed super fund market where the property-spruiking shysters are swirling like moths to a lamp.

Self-managed super is booming. Allowing SMS funds into residential property is one thing. Allowing them to gear up is another altogether – and every two-bit swindler worth his weight in words is there for the killing. It is sure to end in tears.

The bank cartel may not compete on price but, when it comes to advertising, it is pistols-at-dawn.

NAB’s latest offering is its More Give, Less Take campaign, a hotch-potch of pop images and a funky tune which sends the message this bank is not as predatory as the rest.

ANZ’s Buy Ready campaign deploys the tried-and-true happy-family pitch. There are two families in these ads but only one is ready. The message is superior service, an extension on the Simon Baker campaign which smugly suggests you’re a mug unless you use ANZ.

The latest blitz from CBA and Westpac don’t bag their cosy rivals. In the latest manifestation of its CAN campaign, CBA has a star of The Voice television show, Steve Clisby, singing an uplifting song about people achieving their dreams in life. No mention of banking there. While Westpac’s Home Owns series invokes humour: an annoying little bloke in undies doing bombs in your swimming pool and generally overstaying his welcome.

Now that the banks are underpinned by the taxpayer, in an era of 15 per cent-plus returns on equity and 85 per cent mortgage-market hegemony, their advertising is likely to become, like their pricing, ever more winsome and less combative.

Even in the world of marketing, things have gone their way.

Cost is no impediment, and the explosion of social media has made advertising cheap and ubiquitous, putting a lid, as it has, on mainstream media yields.

Next week brings the race that stops a nation. The Melbourne Cup is a boon for the bookies because of the sheer weight of silly money punted on a long race whose outcome is extremely hard to predict.

The bookies are doing well anyway; too well, thanks to slack laws in the Northern Territory which offer not only ludicrously low tax rates but allow the mostly foreign-owned online gaming companies to turn down any punter they like.

They only like losers. We wrote the story of a professional punter, Richard Irvine, who rather courageously spoke out against the laws last month and their deleterious effect on the racing industry.

Irvine has had accounts closed or severely restricted by all of the five top online bookmakers in the territory: Luxbet, Sportingbet, Sportsbet, Centrebet and Bet365.

On Thursday he was on the Seven Network’s Today Tonight which showed footage of him opening an account with betting giant Ladbrokes. Irvine’s account was open for all of five minutes before someone got back to him and said, sorry, we are closing your account – “not commercially viable”.

Thankfully, the media exposure has revved up independent senator Nick Xenophon who has pledged to introduce federal legislation to ‘‘override the NT laws which are too slack and too one-sided and too much of an unlevel playing field for these big multinational corporate bookies’’.

It is not before time. In the wake of our story we received a wave of response from punters whose accounts had been closed with the NT bookies for winning on as little as a bunch of $10 bets.
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