US and UK mortgage lenders green with envy as Australia's 'big four' Banks rake in the profits
As US and UK Banks and and Mortgage Lenders Fannie Mae and Freddie Mac struggle to stay afloat in the continuing Global Recession and mortgage meltdown, they must be green with envy of the privileged existence of Australia’s 'Big Four' Australian banks as they continue to rack up healthy profits.
The Australian bankers at the top end of town at the CBA, the NAB, the ANZ and Westpac will tell you that they are better managed and regulated than their counterparts in America and Britain, and that is indeed true. As Warren Buffet once said, ‘all boats tend to rise on a rising tide, but you get to see who’s swimming naked when the tide goes out’. And American banks have been swimming naked for years in the home mortgage loan area especially.
Also Australia’s Rudd Government has played a beautiful hand in softening the blow for all Australians with a raft of stimulus packages that are starting to buoy retailing and the housing sector, so that many Australian’s are asking “what recession?” And incidentally I believe that the opposition Liberal Government will suffer in the next election because of their continual attacks against these brilliantly managed packages. And the packages are only just starting to take effect. And a lot of the credit must go to the wonderful Australian Public servants in the Treasury for their modelling of these plans.
In my view Australia has a better set of values when it comes to social justice and fairness for the individual. We are not hung up on the notion of “invisible hand” economics, and Australian Governments of both colours proactively manage for better human outcomes. Great job Kevin Rudd!
The Reserve Bank of Australia has also played its part by reducing mortgage interest rates to historic lows, and the result is that there are no tent cities in Australia, unlike in American cities as homeowners are tossed in the street by desperate bank foreclosures because people were unable to meet their mortgage commitments. This has to be the dumbest thing any bank could do, as it has wrecked home values, and undermined the US bank’s collective security [mortgage property held as security]. Many of these loans were clearly unfair, and were not ever going to be repaid without hardship. But again the US legal system does not seem to operate with a sense of equity or fairness. In that I mean that a mortgage contract that is unfair cannot be challenged in law as it can in Australia. Or am I missing something as 10,000 families a day are being forced out of their homes?
But if all of the above were the real reasons, then why are Australia’s lesser privileged, regional and smaller and newer banks not in the same rosy financial position?
Like the Queensland real estate marketing of the 1990’s, where a two tier market was created that devastated many out of State real estate property investors sucked into the scam, there is also a two tier banking system in Australia that favours the big four Australian Banks, and that is at the core of their amazing performance in the financial crisis.
The latest official statistics on bank performance by Australia’s banking regulator, APRA, show a widening gap between the major banks and the rest.
The profit margin for Australian banks last year was 23.2 per cent, but the four major banks operated at a 30.6 per cent margin, while the other domestic banks ran at just 12 per cent.
Clearly, Australia’s Regional Banks, recently formed banks from building society roots, and Credit Unions, and non bank mortgage lenders are disadvantaged. And this needs to be addressed in Australia.
