Fran O'Sullivan: Record set straight on 'Aussie bastards'

Ralph Norris says some of the Australian banks have seriously considered whether they should continue in this market. Photo / Dean Purcell

Banker Ralph Norris can foresee a future where there will be fewer Australian-type banks here within five to 10 years.

In Auckland briefly this week to address the Business Roundtable's annual Dunes Symposium, Norris was asked to do a bit of crystal ball gazing about the future of banking in this country some five years out.

The Commonwealth Bank chief executive's reply was instructive: Paying tribute to Kiwibank ("No doubt it has played its hand very well - nothing like a bit of xenophobia against the common enemy") he went on to say that "some of the Australian banks have seriously considered whether they should continue in this market - there are opportunities elsewhere".

After weeks of Opposition politicians beating the drum over a need for a banking inquiry to essentially prove their belief that "Aussie bankers are bastards - and are price gouging their customers" it was refreshing to hear a major banker tell it straight: Strong banks are absolutely critical to the strength of the economy.

The Australian banking industry is now the strongest banking industry in the world - something both Australia and New Zealand should cherish.

"Our banks are among the best rated banks in the world and have plain vanilla asset structures with little or no securitisation. We are both stable, open economies with flexible product and labour markets, floating exchange rates, robust monetary policy, and had relatively low public debt before the start of the downturn."

The major Australian banks which dominate both the Australian and NZ economies are not price-gouging their customer base - they are all within the top 15 banks worldwide on a sharemarket capitalisation basis.

Allowing them to get about their business will help grow the two economies.

Norris - a highly skilled Kiwi executive who has previously headed ASB Bank and Air NZ before crossing to Sydney to head up Commonwealth Bank - had some key messages for an audience which included high-profile CEOs from major New Zealand companies, several Cabinet ministers and high-profile opposition MPs.

He raised a new concern that the collapse of the finance companies in New Zealand has had a major effect on the second tier banking environment. Notwithstanding the advent of government guarantees the overall financial sector is not as robust as previously. The fact that the major banks - which are less likely to fail - are paying substantial guarantee fees (in New Zealand the Government has already been called on to pay out a guarantee for a finance company) obviously rankles.

Norris' comments come at a time when Australian media reports note their major banks have raised US$93.6 billion ($139.7 billion) - more than 11 per cent of global government-guaranteed bank debt - on the strength of their AA-ratings (just eight banks worldwide have double A ratings - four are Australian) and the Australian Government's wholesale funding guarantee. Australian banks are the fourth heaviest issues, behind the US, Britain and France, and nearly five times ahead of the Irish banks.

Norris notes that Commonwealth has also recently succeeded in raising US$2 billion from the international wholesale markets without a government guarantee - an indicator that the era when the international markets seized after banks lost trust in each other after the widespread banking failures is coming to an end.

In an era where both Australians and New Zealanders are quick to reach for the "bankers are bastards" refrain as they take issue with the perception that banks are not passing through interest rate reductions swiftly enough, Norris makes some compelling points.

Among them: Banks like Commonwealth and its NZ-arm ASB have provided mortgage holidays - something that can be done when interest rates are 5-6 per cent instead of the 19-21 per cent in the 1980s; at his own bank all senior executives and directors have taken a 10 per cent pay cut.

Other compelling points are that the banks have been slower to foreclose during this recession than previous downturns - which has helped to maintain values; bank costs and funding costs have increased; the cost of funding the rollover of 3-5 year loans is now "much more expensive; some financial institutions are bidding up rates on the back of government guarantees".

Norris is among a raft of Kiwi businessmen who have taken up John Key's offer of "a K" joining other luminaries like The Warehouse's Stephen Tindall and Fonterra's Henry van der Heyden among a 70-plus list of new knights and dames.

Commonwealth Bank, which owns ASB, is one of the "big four" banks in Australia. The others are National Australia Bank which owns Bank of New Zealand; ANZ which owns ANZ-National; and Westpac which has a branch incorporated in New Zealand.

In the background are two pressing transtasman issues:

Early last month a group of prominent Australian economists argued a Kiwibank-style "people's bank" with Australia Post providing deposit accounts was necessary to offset the market power of the major banks. Treasurer Wayne Swan canned the proposal - but it did bring back into focus Kiwibank's campaign.

Inland Revenue also claims the banks owe about $2 billion in unpaid taxes and interest. The Australian banks are strongly contesting the issue. Proposals for an out-of-court settlement went nowhere.

Though Norris did not reference these bugbears during his address - some politicians will say the subtext is plain.