Richard Hicks August 13, 2008

What’s needed to spark a revival?

Competition, competition & more competition. Simply put, the big four banks (and the odd second tier bank) are having a field day at the moment, whilst their ‘nemesis’, the non bank sector is ‘out of the market’. Without any real competitive pricing pressure on the big four banks, the current mortgage market is akin to the pre Big John days of bank dominance.

O John, where art thou? Oh that’s right, you’re a broker too. Damn!

And this is off the back of the ‘Which Bank’ bean counters who have just announced a sizeable profit increase for 2008, even in the face of those nasty increases in funding costs over the last year or so. Good job guys! You’ve weathered the storm!!!

I suppose the ’suits’ at the CBA had to find a way to ensure continued shareholder profitability and executive options stay ‘in the money’ as well. OK that makes sense; CBA shareholders get their divvies, and the senior tellers got in for their ‘bonus’ chop too.

So who’s paying the price of the official rate increases and the sub prime capital markets meltdown?

Well, that’d be the great unwashed wouldn’t it? They’d be the poor buggers called ‘customers’ who pay the rate premia & their mates, the suburban mortgage broker, who also took his/her enforced ‘haircut’ to the tune of around 30%.

I won’t bother with the other big four banks, but boy, aren’t they pulling furiously on their oars in the ‘Bank Raid’ coxless fours’ regatta.

Anyway, to get the ball rolling again needs just one thing; pricing competition. Prime & sub prime mortgages are all about pricing. If the rate ’spread’ between bank & non bank lenders remains as is, irrespective of any official rate cuts in the short term, the banks have it made. And is this a good thing for a competitive market? In my opinion, the answer is a simple no.

Non bank lenders need to provide the competition to keep the banking bastards honest (to paraphrase a Don Chipp refrain).

We need a few more modern day John Symonds to work some magic, otherwise Darth Norris and the other warlords will control the mortgage universe for as long as their pricing advantage allows them.

But brokers have long memories too. When the shifting sands of the capital markets occur, and competition returns, I’m sure there will be plenty of brokers looking keenly at the new non bank players again with real vigour. You know, lenders who want to work with 3rd party intermediaries as true business partners, not as a defacto sales force to be cynically manipulated at every opportunity.

MM Reber August 13, 2008

Competition is the critical key to keeping the “big guys” honest, which just isn’t happening at the present, the Banks who anecdotally now hold 90% of the market is very unhealthy. The recent “flight to size” has not served the consumer well & will count heavily against them unless things change soon. Maybe an “Ozemac” based on the Canadian model is a key the freeing up the financial funding markets & returning much needed competition.

Wayne Shepard August 13, 2008

People are always looking for a quick solution and they usually get them with consequences down the track that shouldn’t be. Spark a revival, the whole system needs a total overhaul and that won’t happen overnight - in fact it won’t happen at all. Solutions will be created that will delay the inevitable.

When money is not longer backed by the gold standard, and the idiots in the Federal Reserve continue to look after their mates in Wall Street, then the debacle we have witnessed with this credit crisis is the tip of an iceberg.

The system will collapse one day - you can’t keep bailing out private banking institutions with Reserve Funds which is backed by the taxpayer. Since when did private profit convert to public debt.

This country needs to go back to 1911 with the formation of the people’s bank - the one I used to own, in fact we all did - until the Government sold our asset to private investors - a bank of the people, for the people.

A bank that printed only the amount of money needed to match the growth in the economy and then lent it out to the public at around 1.25%. It cost the country virtually nothing to print the amount of money it needed to put into circulation, but of course the private banks kicked up a real stink because they paid more for their money via deposits and the system ceased in 1927 (if I’m not mistaken) due to that pressure . The private banks have ruled ever since.

And of course in a global economy, the “world” currency (the US dollar) is printed by the “private” Federal Reserve and put into circulation as a loan to the US government and other banks at an interest rate set by the Fed. A legal way to rip off everybody.

So, we a caught in the net and the only way out is a collapse of the present system, which will be avoided when the US dollar merges with the Canadian dollar and the Mexican peso to create the “Amero”. Discussions between the countries have already occured. And then the new system, run by the Fed, will no doubt begin again.

Richard above is correct, the mug punter always pays, the banks will always win. Wouldn’t you think that when the Bank of England bailed out Northern Rock to the tune of 53 million pounds the Government would have nationalised Northern Rock. After all, the taxpayer backed the depositors. But no, the shareholders didn’t loose ALL their money and the “private” Bank of England (the UK’s Reserve bank) has the taxpayer to fall back on if need be. Ya got to think, things aren’t quite right in money land.

Interested August 13, 2008

I most certainly agree with the two gents above. Yes the Banks are having a great time of it at present. Winning back market share because from the non bank lenders (who all rely on warehouse facilities from the large players). The big issue as we all know is purely the appetite of the market for RMBS at the present time. Resimac recently did an issue but smartly didn’t advise of the margin over BBSW that they had to offer. Adelaide also did one recently and I think from memory the margin above BBSW was 110 points. My understanding is that 18 months ago the non bank lenders margins were much greater and hence allowed them to ultra competitive with the Banks. Until the markets appetite returns for RMBS non Banks will continue to lose ground.

Unfortunately those brokers that think placing their clients with one of the big four is the best option may need to think again. Is it the best option for their business. What with reducing commissions and tighter compliance, the latter which I most definately agree with, time will be upon them to decide whether or not their business model is strong enough to survive the lean times.

I like all of us in the industry will welcome the day when this market leaves us, but like all things I am sure we will see a future downturn in the years to come. Lets just hope people have learnt something from this.

Alan Whitehead August 14, 2008

Regrettably,what is needed to spark a complete market revival is time. Just how much time? Who knows? Australia is at the rear end of what is happening elsewhere and will have to wait for major countries to put their “houses in order”. We’ve been there before and, no doubt, we’ll go there again; some 15/20 years after we’ve sorted this mess out!

Ray Dib August 18, 2008

As mentioned above; it is simple and obvious. The government needs to restore liquidity to non bank lenders to create “real” competition again.