Each of the big four banks is reporting around 6 to 7 billion PROFIT this year That's over 2% of the GDP of the whole country ! Just 4 banks - not even counting the smaller banks At a time when the economy is supposed to be doing it tough Worst retail market in many years, mining boom slowing down etc. Isn't there something seriously wrong with this picture ?
Well given the leverage they employ they really ought to be making big profits to justify the huge risks they indulge in. However its not the size of the profits per se I have an issue with its more the size of the banking sector compared to the size of the economy as a whole. When it fails the collateral damage will be huge. Bloated is an apt description. Unfortunately, with the explicit backing of the taxpayer I cannot see the situation improving. http://www.macrobusiness.com.au/2013/08/the-bloated-business-of-banking/ edit to add: Given they have effectively offloaded risk to the taxpayer they really should be making utility like profits and management salaries are off the scale because of this heads they win, tails we lose scenario. Again, I cannot see regulators imposing this upon them.
I think there is nothing out of the ordinary with their profits. They turn over huge revenues, so of course their profits seem big too - they are well-run businesses. For example, NAB's ROE is similar to BHP's. However, both NAB and BHP pale into insignificance with regards to ROE when compared to such companies as CCL, DTL, DWS, NVT & CDA (all over 30%). Australians love dumping on bank profits like it's a trendy past-time. Then they applaud other Australian companies for doing well and making squllions while "strengthening the economy". It ain't the bank's fault that the general public are addicted to debt. We as a public made them what they are, then want to bitch about it afterwards.
I just learned from MSM recently that the Commonwealth Bank had capital of $115 billion. I suppose $7 billion is not such a huge profit on capital. However having said that, I would love to know where the profits came from./ Was it from fractional reserve banking or the derivatives market? Maybe someone here on SS may have the answer! Regards Errol 43
Better to be a bank shareholder than a bank customer. I saw a report several years ago about 'unbalanced' economies and a sure sign of that being when the finanancial services sector i.e non-productive industries exceed 5% of total GDP an economy is ready to reset.
Saw a good chart explaining some of this, I'll dig it up tomorrow. Spread between the RBA rate and the banks Rate is almost double what it was before '08. Their margins are massive now.
That's everywhere the case. The reason is that the crisis caused people to save instead of spent, and the interest rates difference is just free money for banks. Banks can just reserve the profit they want.
Agree. The general public started tightening their purse strings and paying back their loans and credit cards and reduced their spending. Reduced spending and widespread saving is supposedly not good for a consumer economy. That has been Japans' basic problem for the past 23 years. In Australia the Government steps in and throws money about (fiscal stimulus, $1000 hand-outs, school building construction programs etc) to get people to spend. As far as bank profits go, it is a good thing that they do stay in the black. Banks (our Four Pillars) are a protected species in Australia but on the flip-side the government has a tighter reign on them. Most of the publics' Superannuation funds in Australia usually have a heavy weighting of Bank stocks. In Canada they have the 'Big 5', similar to our 'Four Pillars' policy. Quoting Wikipedia: "Big Five is the name colloquially given to the five largest banks that dominate the banking industry of Canada. All five banks are operationally based in Toronto.[1] [2] All five banks are classified as Schedule I banks that are domestic banks operating in Canada under government charter. The banks' shares are widely held, with any entity allowed to hold a maximum of twenty percent.[3] According to Bloomberg, in 2011 the big five dominate the world's ten strongest $100-billion-asset banks, with Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, National Bank of Canada and Royal Bank of Canada at 3rd, 4th, 5th and 6th place, respectively." Another reason I like Canadians (and their coins), they think like us!
I read in the paper on the weekend that the $900 Crudd bribe cheques are still being sent out! Employers of backpackers especially are noticing mail turning up for backpackers, even ones who left the country 2 years ago. They open them up and lo and behold, global financial crisis stimulus cheques are inside. Chris Bowden states that it is occurring as per the law. LOL the law is an ass.
The problem was that it was open-ended. A 12 month limitation should have been imposed on the hand-outs. The public service dutifully keep sending the cheques (checks) to everyone that was eligible. Another hole in the bucket....
I don't know what the Australian central planners did since I don't follow their stories, but I follow the Federal Reserve US side story, and despite all the media articles about open lending / bailouts, the Federal Reserve did the very opposite: it did its best to make people NOT spend. For the obvious reason, because if they did, they would see strong general price inflation and that is a chain reaction they can't have in the current situation. Some figures that form the basis for this statement: http://research.stlouisfed.org/fred2/data/REQRESNS.txt http://research.stlouisfed.org/fred2/series/REQRESNS The required reserves have been around $40-60 billion since 1980 and $40 billion since 2000. In 2009 it was quickly driven up to $60 billion. 2011 crossed the $80 billion. 2012 crossed the $100 billion. 2013 almost reached the $120 billion. And then the velocities of the M1 and M2 money supplies. M1 holds the most 'direct' spendable dollars. Banknotes, bank checking accounts and so on, the dollars that are most likely to be spent in the nearest future. M2 holds the termbased deposits. Bank longterm saving deposits. The velocities of these money supplies indicate how much people spend versus how much they save. For example, a dollar velocity of 5 means that someone with a nominal income of $10000 over a given period, holds aside $2000 during that period. In other words: the person holds/maintains 1/5 of his earnings as savings. The higher the dollar velocity, the less that the person saves / holds aside dollars. A dollar velocity of 100 would mean that the person with that $10000 income only holds $100 aside. The lower the velocity figure, the bigger the part of the income that is saved instead of spent. A velocity of 0 means that the person completely stopped spending his income or stops having an income at all. That doesn't mean that the economy came to a standstill though, since people can still trade EXISTING products, and that's why the velocity of money is not the all-sayer that some seem to use it as such. The Federal Reserve measures the income along the gross domestic product so dividing that by the money supply gives the velocity of the dollars of the money supply. Let's now move to the data: http://research.stlouisfed.org/fred2/data/M1V.txt http://research.stlouisfed.org/fred2/series/M1V/ In 1980-1990 the velocity of the M1 stock was 6-7 (so people held on average 1/6 - 1/7 of their nominal income aside). 2000 crossed the 9 and 2006 the 10. It reached an all time peak of 10.7 on 1 october 2007. 1 year later, 1 october 2008, it started to collapse at a ridiculous fast rate, in just 3 months, it dropped from 10.4 to 9.5. Such a fast collapse was never seen in history, even not during the highdays of the late 1970 crisis. And the collapse didn't stop there, as of present, it just keeps dropping, it's now a mere 6.6, a level that needs 2 decades back to see again. So since the 2008 EEK! people hold a much bigger part of their income aside as banknotes, coins and checking accounts. Relative to 2008, the velocity of the M1 money supply dropped 38% And what stands out even more is the velocity of the longer term deposits, the M2. http://research.stlouisfed.org/fred2/series/M2V http://research.stlouisfed.org/fred2/data/M2V.txt For most of the half century, it hung around 1.7- 2.2 (it's typically much lower than the velocity of the M1 stock, since it's about peoples longer term savings). But in 2008, the velocity collapsed, and for 5 years later, it dropped further. On 1 juli 2011, it reached the lowest since 1959, the start of the data, a low that last occurred in 1964, the last year of the 90% silver circulation coins. And it didn't stop there, it just kept on falling. On 1 april 2013, it reached 1.575, another 5% lower than the 1964 record low. Relative to 2008, the velocity of the longer term savings M2 money supply, dropped 20%. See, in 2008, people started to save like squirrels in autumn. And the central banks put the brake on lending by tripling the required reserves over the past 5 years and PAYING banks on their excess reserves. In 2007 the US law was changed as to allow the Federal Reserve to do this. 2008 started with a M2 - M1 (the longer term savings part of the money supply, since M2 incorporates M1) of 7453.9 - 1368.5 = 6 trillion dollars. On 29 juli 2013 the long term savings were 10762.2 - 2574.0 = 8,2 trillion dollars. So in 5 years, people piled up their savings with 2,2 trillion dollars, +37% Compare the interest percent they receive on their savings from their banks with the percent that the central bank pays their banks, and it's easy to understand why banks can make huge profits.
That is pretty misleading though. You are only comparing to a single point in time ie. 2008, which was a really abnormal time for bank margins. The world was awash with credit and in Aus bank margins had been compressed due to competition from non-bank lenders (Aussie Home Loans, RAMS et al) - these guys kept their rates low by using cheaper short term funding which was fine while they could keep rolling them over. Even St George got in on the act heavily and Gail Kelly had a good stab at killing the dragon when it all went to shite. In 2008 that all stopped, RAMS blew up spectacularly, Aussie is now just a broker, St George got swallowed up by Westpac and the smaller players have mostly gone. So you could argue bank margins are simply returning to their longer term average and 2000-2008 is the anomalous period. The banks still made good money even during this period due to 20% yoy credit growth, which again was way above the long term average. Also, simply comparing to the RBA rate does not really tell you what the actual bank margins are - you have to compare to what they actually pay for their funding - 2008-2011 banks were probably overpaying on domestic funding ie, term deposits etc to rebuild their domestic funding and trying to reduce their reliance on the suddenly skittish foreign funding sources.
Come the revolution, we are going to put all those greedy banksters up against a wall. An AK47 magazine should teach them a lesson. Who cares about all those lovely dividends flowing into our superannuation? Who cares about all those loans to start businesses and create jobs for the proles? OC (Nearly forgot all that Company tax! How would the zombies survive without that?)
High bank profits are from high mortgages. That's why they'll do anything to prevent a collapse in residential real estate prices.
Said it many times here, the BASIC function of a Bank is the borrowing and lending of money. They borrow at 5% and lend at 7%, and the difference pays the costs and the profit. Everything else is just minor in the overall picture. Bank profit is, as pointed out by another member here, about right considering the numbers involved. Bank bashing is a childish and ignorant activity, usually based on propaganda. Anyway who the hell wants a unprofitable bank holding our money? OC
Guess I am the only one Not bank bashing - just seems strange to me that banks no longer suffer from economic cycles like other companies Profits just keep rising no matter what Guess memories of 1990 have faded, when half the banks were insolvent
It is often said that the two businesses 'guaranteed' to be profitable are banking and insurance. The only proviso is that common sense and prudence are employed at ALL times. That means interest rates and premiums MUST be subject to constant oversight. Those basic principles have been written in stone for ~400 years. NO bank can survive if it offers market +5% on fixed deposits, and/or asks market -5% on loans. THAT is what bank competition is all about, they watch each other like a hawk! OC
According to the ABC last year Australians (23 million of us) paid more bank fees and charges than the entire population of the (USA 313 million) paid to their banks. And I am talking about total, not per capita. .
Yet each of the four makes about 7 billion in profit Not even one of them is doing badly or even just a little worse All the four banks must have the best CEOs in the world
