Westpac redux. Gee, there has been a lot of rubbish written (and spoken about) in the media by business writers, analysts and economists about the Westpac rate rise. The cheer squads missed the point — and even underlined the bank’s greediness in forcing customers to pay for something that shareholders should really be paying for: the continuing safety of the bank. Westpac could have easily raised new capital (along with the $3.5 billion issue) by keeping dividends steady for the next year or so. The Australian Financial Review had a front-page story quoting Westpac CEO Brian Hartzer vowing to raise future dividends — which will presumably come from the higher mortgage rates (and any other rate lifted by the bank in the meantime). This was after the bank reported record earnings and struck a record dividend for 2014-15.

And then there was the cheer squad in the papers and the business commentariat who almost unanimously said the Westpac move would force the Reserve Bank to consider a rate cut in November (or early next year — whimps!) to offset the rise. The “why” was not really explained, just the assumption that the 0.20% would damage consumer confidence and cut spending. That’s a load of crap. Not one commentator has mentioned that, according to the RBA, just on half those with mortgages are repaying their home loans faster than they have to, i.e. their effective interest rates are set well above what they have to repay. The RBA reckons that mortgagees have around $90 billion in extra equity in their houses because of the higher repayments. A rise of 0.20% won’t impact them one bit. And by the way for investors it is the second increase from Westpac after the cost of investor loans was raised by 0.3% last month — so the increase for them is 0.5%.

Talk about double dipping by a cynical bank management with rip-off culture. And the investor increase was to pay for the higher capital needs for that type of loan. The higher capital costs are a continuing business cost, not a one-off. Will the CBA, NAB and ANZ join greedy Westpac? Here’s a chance for the oligopoly to shock us all by being competitive. — Glenn Dyer

Taxpayers to keep greedy banks alive. On top of the higher capital requirements demanded by APRA, the Reserve Bank has put in place a backstop for the entire financial system, centred on the 13 largest deposit-taking institutions. In the event of a markets freeze, the banks have to be able to access enough money to last 30 days of being shut off from the rest of the world — which happened during the GFC in late 2008 when the RBA kept the financial system, the banks and the economy alive with tens of billions of dollars of aid, directly and indirectly. Since then the RBA and APRA have devised a new system of support called the Committed Liquidity Facility (CLF) to support the financial system.

In a little-noticed letter released on October 6, APRA details the structure of the CLF, which will be required to meet total needs of $406 billion at the end of 2016 (that’s the amount of money the entire financial system expects would have to be repaid overseas in a 30-day period). The RBA reckons the banks have access to $195 billion in federal and state government debt (called “high quality liquid assets”). The RBA says that it will have to provide (create) a total of $242 billion in extra support (to meet that $406 billion outflow estimate) to the banks (that includes extra “buffer” funds to account for unexpected claims). This will keep the banks, the financial system and the wider economy alive in a new crisis. This is potential taxpayer money being offered to support the banks and the shareholders (who refuse to pay their part by accepting static or lower dividends for a while to help build banks capital reserves). Instead, the bank’s best customers — home loan holders and the taxpayer — will have to provide the support.

Thankfully, the RBA will charge the 13 biggest banks 0.15% a year for the CLF — which means $360 billion a year in revenue. Small comfort. And the banks will try to force customers to pay for that cost, even though it is keeping the banks, their customers, shareholders, managers and employees safe — not to mention the wider economy and the federal budget. Too Big To Fail is alive and well in Australia. — Glenn Dyer

Walmart’s shock. Mark October 14, 2015 as the day when the world’s biggest retailer was irrevocably changed by the digital disruption being driven by the likes of Amazon. Earlier this year we noted that Amazon’s market value had overtaken that of Walmart, despite the latter having close to half a trillion dollars a year in sales from the US and offshore markets (Canada, Mexico, the UK, China and others). Amazon’s sales are running at around 20% of Walmart, and yet it is now thought to be a better prospect for growth than the US and the world’s biggest retailer (Amazon was worth US$254 billion at the end of trading this morning, well ahead of Walmart’s US$192.5 billion). — Glenn Dyer

Peter Fray

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