Red card for Aussie bank managers

Harry Triguboff has called out the banks on their explanation of funding costs, but they're not the only ones who will have to start describing their strategies in much more detail.

Harry Triguboff has signalled that it is no longer good enough for management to make assertions and expect everyone to accept their version of events.

Triguboff is effectively saying that the banks who claim that their cost of funds is rising are either simply telling lies or that the higher costs are caused by bad management and should therefore be borne by shareholders, not their customers (Banks drag the rates chain, January 5).

It's true that Harry Triguboff’s Meriton group is Australia’s largest apartment developer and owner and therefore Triguboff has a vested interest in lower interest rates. But that does not neutralise the importance of his observations.

Already retirees with money on bank deposit are receiving substantially less for their term deposit money, so there is no question Triguboff is right that local bank funding costs have fallen and fallen substantially.

But the banks argue that the cost of their wholesale borrowing overseas, which amounts to about 40 per cent of their funds, has risen sharply.

There is no doubt that, as a simple statement, is correct. But as a chief executive himself Triguboff questions the bank management practices that have lead to this situation. He points out that there are enormous sums available in Japan and China, where investors are receiving far less for their money than Australian banks are offering. He believes that Australian banks are perfectly placed to attract this money.

Accordingly, he is questioning the management abilities of the bank chiefs who are still seeking funding in Europe.

So if banks do not reduce home mortgage rates further they will not be able to get away with broad assertions about higher funding costs.

They will have to explain not only that conventional wholesale money costs more but that they are not able to gain the money from China and Japan despite the fact that our interest rates are much higher than investors in those markets are accepting.

They will also need to equate any higher overseas costs with the big reduction in local funding costs.

Just as bankers are going to have to explain their strategies in much more detail, retailers will face the same task. The traditional explanation that trading conditions are tough (or buoyant) will not be sufficient.

Companies like Myer, DJs, Harvey Norman and JB Hi-Fi face a series of very difficult management challenges and how their management tackles those challenges will determine their fate.

Two commentaries in recent days explain the position of the four companies brilliantly. First we had Christopher Tipler’s article in Management Insights (Myer & DJs: dinosaurs or dynamos?, January 4) and secondly John Hempton’s (Sliding towards electronic retail irrelevance, January 3). They are essential reading for those interested in retail strategies.