Why Australians are turning their backs on the banks

Institutions that fail to deliver on their promises -- either in politics or in the financial sector -- are being shown the door by fed-up Australians.

Power to the people. We are seeing both in politics and in banking investment what happens when large parties or corporate institutions don’t deliver.

Australians have turned their backs on the big superannuation fund managers and are now turning their backs on bank deposits. The implications are enormous, given what the Murray report is about to do.

In federal politics we have seen governments not deliver their promises over a decade and the poison created by the Abbott government’s latest mistakes contributed to the Victorian Coalition debacle at the weekend election. The implications are enormous, given there is a Federal election in less than two years.

Let’s start with what is happening on the investment front.

As we all know, Australians personally now control one third of Australia’s superannuation money via self-managed funds. The big institutions were sacked because they charged too much and delivered too little.  

According to Credit Suisse, there was $559 million invested in self-managed funds at September 30, up $41 billion or an incredible 7.8 per cent on the quarter. Australians are pouring money into self-managed funds at a rapid rate.

But Credit Suisse also reveals that self-managed funds are taking their money out of bank deposits and investing it in the sharemarket. In the September quarter, while the hedge funds were selling Australian equities, self-managed funds lifted their share market equity holdings by $3.5bn.

Credit Suisse predicts that self-managed funds will invest $1bn in additional money into the sharemarket every month for the next two years. The funds now own 16 per cent of the equity market and they are now reducing their cash holdings.

Banks decided that deposit rates should fall by much more than official rates because the banks were fighting a home loan war and reckoned their depositors had nowhere else to go.

But the self-managed fund depositors believe they have another avenue: the sharemarket. The people are sacking the banks and investing in shares.

Our old-fashioned chief executives confine their deeper communications with shareholders to institutional shareholders. They play mind games, whereby the chief executives have found a way tell the institutions what next year’s profit will be without breaching the letter of the law. No question they are breaching the spirit of the law.

The communications ignore self-managed funds and the CEOs do little to explain their growth strategies (if there are any) and their importance to future profits and dividends. 

So having been ignored, the self-managed funds are buying yield in replacement of bank deposits and pushing more and more stocks into paying out higher dividends than they should (Raising the alarm on bloated dividends, October 8).

In this case, people power will underpin yield stocks, including bank shares, depending on Murray.

In politics we are seeing a similar application of people power. Australian Prime Minister Tony Abbott promised he would end the duplication between state and federal departments in education health and other areas. The savings would amounts to tens of billions so no tax increases would be required. Their departments snowed the Treasurer, Education Minister and Health Minister and the savings deferred to committees and other public service tricks.  

To replace the money, the government was sucked into tax increases in direct contradiction of its promises. And the Treasurer also shut down the entire motor industry with no mandate. The Defence Minister, inspired by way the Treasurer killed off the motor industry, reckons the defence industry should be put in a canoe and sent out to sea.  

Not surprisingly, Abbott is poison in Victoria and South Australia. In the Victorian election, the use of union members to personally contact voters in marginal seats multiplied the impact. The Victorian state election indicates about five or six Commonwealth seats are gone -- almost one third of what Bill Shorten requires winning the next election (How Abbott became political poison in Victoria, November 27).

Abbott will have reduced Coalition representation to token levels in Victoria and South Australia, which together approximately equal the NSW population. It’s called people power. And the defeated Napthine government deliberately ignored the recommendations of the ADC Infrastructure Summit and went out and did secret deals with the big institutions to fund the now ill-fated East West Link project.

It should have constructed higher than bank-yielding securities that could be issued to the public lead by self-managed funds.

Had Napthine heeded the summit recommendations, I suspect the community support for the project would have helped overcome the Abbott poison.

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