Bank chiefs to face pollies after a year of grand gestures

Talk about cutting credit card rates have come to nought, but the debate on tracker mortgages won’t fade away.

ANZ boss Shayne Elliott. Illustration: Eric Lobbecke.

Last time ANZ boss Shayne Elliott fronted parliament, he was the only one of the big four to say he would look at cutting credit card interest rates and introducing a tracker mortgage, but next month he will be explaining why neither is happening.

The grand gestures have come to nought. Not that this should surprise anyone, but Elliott can at least say he did what he said he would — which was to look at the possibility.

Tracker mortgages operate in Britain and elsewhere and are home loans priced off the official cash rate so punters know exactly what they are getting.

In Australia, the big four, which control more than 83 per cent of the market, argue that official cash rates are only one of several factors that set the home loan rates, so if they were going to offer the product it would be more expensive and hence no one would touch it.

The standard mortgage rate today is about 4.2 per cent and, as a guide, a tracker mortgage would be sold at 4.9 per cent, so the thrill of knowing that the rate would change in line with RBA rate moves is expensive.

That’s what the other bank bosses told David Coleman’s committee, which leaves ASIC’s Greg Medcraft as the lone voice in pushing for tracker mortgages, credibly arguing that the bank bosses are simply talking their book.

Medcraft will argue that the banks’ refusal to act simply reflects their market dominance. Having just returned from Davos, Medcraft says everyone is talking up Amazon as being a potential bank ­competitor.

ANZ, like all the big four, has a range of credit cards, charging penalty rates from 13.49 per cent to 19.9 per cent, all partly reflecting costs, but in reality there won’t be any cuts anytime soon.

The last parliamentary hearing was in October and as an annual event most thought it would be some time before the bank bosses had to pay homage to the politicians again. This time CBA’s Ian Narev will be the only one to have reported earnings, tipped to be $7.4 billion on revenues of $13bn.

He will also be the only big banker to report results in what the market sees as being more sanguine times for the lenders.

After all, they have all just exercised their market power by repricing their mortgage books by between seven and 15 basis points and seen renewed interest in investor home loans.

What Elliott saw as an outlook “dominated by headwinds” is now at worst neutral. The loan book repricing has at least matched the spike in fixed-term deposit rates.

There have been no big-ticket corporate collapses to worry about, the mortgage market is settling down with few troubling discounts, the pressure on margins has eased due to the book repricing, the overall market is sanguine and asset quality is just fine, and the regulatory pressure on capital has officially eased for at least 12 months.

Elliott can even front the parliamentary panel as the market leader with the highest capital ­levels. Last time around, the politicians didn’t land a glove on the bankers, but at least this time the banks will have to justify past statements and the politicians will come to the table with more knowledge and less of an agenda.

Depending on what happens between now and March, when the next round of hearings are due, the committee may get more sense from actually getting some firm answers from Scott Morrison on what he plans to so.

Small Business ombudsman Kate Carnell has handed her ­report on banks’ treatment of small business to the Treasurer, who is yet to respond.

Among other changes, she wants ASIC to have a commissioner specifically for small business. She is also looking at how the banks have responded to law changes that open them to unconscionable contract claims from small business.

Morrison was also going to install an enforcement type at ASIC to replace Greg Tanzer, who stepped down late last year. More talk, no action from ScoMo.

Dexion next cab off

Storage and racking business Dexion is next on the sale list for GUD’s Johnathan Ling as he moves closer to being a car-parts business, with automotive now ­accounting for 42 per cent of sales and 82 per cent of earnings.

Dexion, by contrast, accounts for 27 per cent of sales and negative 1 per cent of earnings.

The sales of Lock Focus and Sunbeam last half have helped GUD increase earnings per share from 26.9c to 28.8c and, with the division’s margins around 30 per cent, it’s easy to see why Ling is ­impressed. The market liked the result, with the stock closing up 3.9 per cent at $10.09 after falling from $10.90 in recent weeks.

Banducci bandwagon

The bandwagon behind Brad Banducci and Woolworths is building fast as retail analysts jump on board, forecasting better earnings for the supermarket sector as a whole this year.

Some would argue the latter-day converts have left their run too late, but in the competitive market there is a certain safety in numbers, which makes it easier to be on the buy side when everyone else is. Some would use the recent rush behind Banducci as a classic example of the herd mentality, which runs the sharemarket, but Banducci and his chairman Gordon Cairns are unlikely to let that worry them and are simply happy to be a market darling again.

UBS’s Ben Gilbert is the latest to join the bandwagon, with a note out on Tuesday increasing his rating on Woolworths from a sell to a buy and lifting his price target on the stock from $19.10 to $27.30. Last week, it was Shaun Cousins at JPMorgan who increased his price target from $22 to $28 a share, and before that Michael Simotas at Deutsche.

Given the recent 12 per cent run in the stock from $22.40 in mid-December to a high last month of $25.16, the calls are arguably late in the game. Since June last year, when the stock was trading at $20.89, it has increased 24.5 per cent against the market’s 7.2 per cent gain. The stock was up 1.9 per cent at $25.09 yesterday.

The counter-cyclical prize for picking value goes to BAML’s David Errington and the folk at Perpetual who bet $1.2bn on the stock back in September 2015, when Cairns became chair. Errington thinks the stock has plenty left to run, with a $40 price target.

There are still some holdouts, including CSFB’s Grant Saligari, who has the stock as a neutral, and Morgan Stanley’s Tom Kierath, who has an underweight recommendation on Woolworths and a $20 price target. In a recent note he said: “At the current valuation we argue Woolworths is already priced for a turnaround.”

The counter-cyclical call from Errington was based on his belief the company has quality assets but lousy management. One reason for the present enthusiasm is the expectation that for the first time in seven years Woolies will outperform Coles on comparable store sales. That Coles is comparing its performance against 4.5 per cent growth a year ago, against Woolworths’ three consecutive negative quarters, plus the fact that it’s a result of $1bn in capital expenditure, is being ignored by the new-found bulls.

Brad Banducci will speak at The Australian’s 5th annual Global Food Forum on Tuesday, March 28 in Melbourne.