Our two biggest banks, Westpac and the Commonwealth, have developed the unfortunate habit of bleating about interest rates, customers, the cost of raising funds and issuing all sorts of dire warnings about the future movement in rates, especially those on home loans.
Westpac CEO Gail Kelly (she’s almost “sainted” such is the media’s attraction to her) moaned and groaned yesterday at Westpac’s strategy briefing ahead of next week’s annual meeting. Last Friday the Commonwealth’s Ralph Norris, who had been the lead offender, issued another of his pronouncements in justifying his bank’s grab for cash by lifting rates more than the Reserve Bank’s 0.25%.
Said Norris: “Unless we see all of the wholesale rates come back to what they were in early 2007, we are going to have a situation for some period of time where average cost of funds is going to increase at a rate above the level of the official cash rate. Bank wholesale funding costs were rising as the Big Four competed fiercely for deposits to reduce their reliance on short-term international funding markets.
“That is unless rates fall to what they were before reality struck in mid 2007 and returned risk to a central role in pricing money, then we will all pay more. But we senior executives will still get paid more, despite what we do to customers and shareholders.”
These attitudes, and those expressed by Kelly are disgraceful in that the federal government’s guarantees saved the CBA, Westpac and the other banks from joining the rest of their mates overseas on the downhill slide. The CBA, Westpac and other banks were so strapped for cash that the easiest and most cost effective way of raising cash was selling self-securitised home loan mortgages to the RBA in the last quarter of 2008, which they did to the tune of $45 billion. They couldn’t raise money elsewhere in Australia or offshore. Customers were withdrawing hundreds of millions of dollars in cash a week, companies were hoarding cash, as were the banks at the RBA.
And now we’re told by the likes of Kelly that we will have to pay more (echoing the Norris bleat) because rates have gone up. The reality is that the banks have been told to boost their customer deposits, push professional deposits and debt out to a year or more and keep more liquidity on their balance sheets. In other words, they have to act prudently, like bankers should be doing every day.
Westpac has been under regulatory pressure to fix its capital ratios in housing because it has boosted lending in its own bank and in St George, which continues to be weighed down by huge bad debts from Kelly’s reign.
But Kelly went further yesterday in her bleating. But the reality is while Westpac more than any other bank talks the the talk about its great customer service, in the past year it has been the least kind to home loan customers.
Her comments verged on the nauseating: “It’s about listening to customers,” who again trotted out her observation (in a presentation) that we were living in a “New Normal.” ”It’s about being visible … being there for our customers.” Westpac certainly has “been there” for its customers since it lifted home loan rates by 0.45%, compared to the rate rise from the RBA of 0.25%: it’s been there, rooting around in their bank accounts, chasing the extra loot.
Westpac’s standard variable home loan rate (SVR) currently stands at 6.76% at Westpac, 6.66% at ANZ, 6.61% CBA and 6.49% at NAB. The Westpac-owned St George Bank lifted its standard rate by 0.39% to 6.68%.
And then there was the fate of Peter Hanlon, who had to sell the rate rise Westpac last week and did so in a fitful way. Kelly and the rest of the bank’s board and management were nowhere to be seen.
Yesterday, the bank revealed that Hanlon, its current retail and business banking head, has been appointed group executive for people and transformation, responsible for modernising the system and processes in place to serve customers. That takes place on February 1, as do other changes.
The move is an effective demotion, moving him down one rung in reporting levels from the chief executive, as this page on yesterday’s presentation reveals. Hanlon goes from being one step below God (AKA Kelly) to two steps and Rob Coombe, former CEO of Westpac’s 60% owned funds management arm, BT Financial Group, replaces Hanlon as group executive for retail and business banking.
(And while you’re looking at the page, note all the males reports to Kelly and the absence of other senior female bankers at Westpac).
Coombe’s only retail experience was at BT where he was head of its retail business, before being promoted to replace BT’s boss David Clarke, who departed in 2004. When Coombe was promoted to head of BT, he was touted as a possible replacement for then CEO David Morgan. That never happened as Kelly was head-hunted from St George.
“We have established a multibrand business model with the successful merger with St George, and we have built a strong one-team culture,” Kelly said in the statement yesterday. “The next phase of our transformation lies in significantly strengthening our focus on customers, people and productivity.” Westpac said Hanlon would be responsible in his new role for the customer and productivity elements of the transformation program as well as corporate affairs and sustainability.
Cooper, who led the St George integration, will replace Coombe as chief executive of BT Financial Group.
“Peter has been key to the excellent performance of our Westpac Retail and Business Bank, managing the significant investment and roll out of our local branch and bank manager strategy, and achieving strong growth in cross-sell and market share,” Kelly said.
From what Westpac said yesterday in the statement and in a separate presentation on its strategy update the changes seem more than a little out of place and why they had to be made yesterday isn’t clear. Apart from Hanlon, Coombe and Cooper have little real experience dealing with customers as bankers.
There was lot of defending of the rate rise last week, but no admission that (As Tony Boyd explained in Monday’s AFR) that under her management, Westpac had boosted its home loan business over the past year and was now under regulatory pressure to add more capital and rebalance the funding of the home loan book.
Despite her spinning yesterday, Kelly also failed to say that Westpac saw its overall net interest margin rise by 0.31% in the year to September. That was the best of all the big banks, and Westpac admitted yesterday its SVR had been 0.17% more than its rivals over the past year.
Again it’s what they don’t say is what tells you where the real story lies. Inconvenient facts are often omitted to bolster the spin.