It’s not often you can write that the Sydney Daily Telegraph and the Commonwealth Bank are joined at the hip as both continue to try and rewrite recent history by ignoring just how much this country owes to the Rudd government, and especially The Reserve Bank, for getting the economy (and the financial system) through the GFC and global recession.
It’s either collective amnesia, or something more telling; hypocrisy or just plain arrogance. The paper and the bank should know better. The Saturday edition of the Tele and the 2010 annual report from the CBA, released on Friday, amply illustrate this.
On Saturday the Tele gave a big splash to a report from Merrill Lynch and research house Capgemini about how Australia now has more millionaires than ever:
“A record number of everyday Australians have joined the millionaires club with a new crowd of entrepreneurs emerging from the global financial crisis…There are now more millionaires in Australia than before the crisis, with many newcomers taking the plunge on a business idea mid-GFC and striking gold.”
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No mention of the fact that liquidity assistance to the banks in 2008, especially the last quarter, plus record interest rate cuts and turning a regulatory blind eye while Westpac bought St George and the CBA knocked off Bankwest, all helped the Australian economy and financial system weather the storm that followed the collapse of Lehman Brothers.
Nor was there any mention of the deposit and fundraising guarantees Australian taxpayers offered our banks (through the federal government), which underwrote their ability to survive and make it through the slump.
In fact without this support, many of these businesses started mid-GFC would have been stillborn, killed by the slump and a lack of demand. That they succeeded is testimony to the impact of the stimulus spending from Canberra and especially the RBA’s record rate cuts. But there’s no recognition of this at all.
If we didn’t have that support, the number of Australian millionaires would be very much smaller, the paper would be writing wailing stories about businesses going to the wall and blaming nasty banks. And the millionaires who survived would be significantly poorer and the economy would be mimicking America’s with slow growth, high unemployment and a bigger budget deficit and debt. It was odd that a paper that professes to speak for the battlers on Sydney and NSW, glorified wealth and millionaires on its front page.
But what the Tele wrote was nothing compared to the rank hypocrisy of Australia’s biggest bank, the CBA. It remains in complete denial about why it was able to survive the GFC. Not only did it make silly loans to the likes of ABC Learning (nearly $1 billion lost) and other dud companies in the run up to the crash, it, like all our other banks ran out of money in the last quarter of 2008 and had to be bailed out by the RBA. But there was no recognition of that fact (just as Macquarie Group skates over the support given it by taxpayers).
The CBA’s 2010 annual report, released on Friday, revealed that CEO Ralph Norris was paid a record $16.1 million in cash, shares and other benefits in the year to June, while his 10-person senior management team shared in a $23 million increase in their collective remuneration for the June 30 year.
None of that would have been possible if the government and the RBA had not come to the aid of the banks and the financial system from October to December 2008. The CBA and other banks (including Westpac, which is run by Gail Kelly) would all now be in the midst of a nasty squeeze as they tried to recover from crippling losses and runs on their branches (that’s if they were still viable).
The Reserve Bank, in its own way, has detailed the dramatic events of the past two and a half months of 2008 (it did so in its 2008-09 annual report). But the CBA and its mates are still yet to fully acknowledge just how much they (their managements and shareholders) owe to the RBA and the federal government. Thousands of other businesses and hundreds of thousands of ordinary homeowners and business people owe a similar debt that is still to be fully admitted.
The last 10-12 weeks of 2008 were fraught for the country, the banks and the financial system as a whole. The RBA had earlier ordered the major banks to self securitise their home loan mortgages into big blocks. This was in early 2008 as the bank’s worries about the global crisis intensified.
After Lehman Brothers failed in the middle of September 2008, our banks found they were cut off from offshore funding and couldn’t get enough domestically from the markets as banks refused to lend to each other and other businesses and individuals hoarded cash ($10 billion in cash was withdrawn from the banking system in the December quarter of 2008 and kept in homes and wherever, so scared were ordinary Australians).
So to keep the system functioning, the RBA bought $45 billion in home mortgages from the banks in those 10-12 weeks of late 2008. They did so at a discount to generate a profit for the bank, but it pumped enough money into the banking system to keep the economy going and keep the strains off the front pages and out of the 6pm TV news.
But no mention of that from the CBA this year or last. No, the big rise in profit enjoyed by the bank in the June 30 year was all down to the sterling work of the bank’s management (and the board, all of whom should be reminded just what went on because they are the ultimate custodians of trust in the institution).
CBA chairman David Turner had the hide to write this (or sign what had been written for him) in the annual report:
“The Group is a strong organisation and the resilience and strength of the Group’s business franchise was well demonstrated by its financial and operating performance through the global financial crisis which continued into the 2010 financial year in which the Group has delivered another good result.”
It was nothing of the sort, in fact the 42% rise in cash profits in the 2010 year was almost solely due to a sharp fall in bad debt provisions and losses from the 2009 year. And that was due to the impact of the stimulus spending, the stabilising of the financial system and the government guarantees for the banks’ borrowings and the return to growth of China, which has boosted national income and confidence.
Very little of the improvement came from actual management decisions, apart from the cut-price purchase of Bankwest, which brought some problem property loans as well as the chance to buy a good business cheaply without opposition from regulators.
No doubt we will get similar examples of selective judgement from the NAB, Westpac and ANZ when they report in late 2010 and reveal big pay packets for their CEOs and managements.
And these banks have to hide to continue to complain about the cost of funds and ignorant analysts and members of the media write stories about “rate shock rise looms”, as we saw last week after the new bank capital rules were outlined.
One of the urban myths is that our “strong” banks survived the GFC because of strong regulation. Well, without the lifeline extended by the federal government and the RBA in late 2008, APRA, the regulator, would now be deeply involved in cleaning up the mess at these strongly regulated banks.
No amount of selective memory, ignorance or just plain rewriting history can change that fact. Regulation is great up to a point, its liquidity that gets a bank through the hours, days and weeks of a crisis.
And in late 2008 the RBA was the only source in Australia. And that’s why we survived the GFC.