People have always thought banks were ripping them off

The notion of banks being unpopular is not exactly new news.

Priime Minister Malcolm Turnbull. Illustration: Sturt Krygsman.

As the banking sector appears headed towards a seemingly inevitable yet totally unnecessary royal commission it is worth noting that the notion of banks being unpopular is not exactly new news.

Rightly or wrongly people have always thought their bank was ripping them off.

In a recent report, CLSA’s Brian Johnson noted the looming inquiry would probably “crimp the unfettered pricing power of the Australian banks”. This power, he noted elsewhere in the report, was already under threat because of rising US interest rates, lower net interest margins and the myriad inquiries, including the upcoming Productivity Commission report on bank competition.

Johnson warned that royal commissions had a habit of diverting way off course, which could ­trouble the banks.

In Westpac’s 2007 annual ­report outgoing chief David Morgan started his review by saying: “Nine years ago our customers didn’t like banks in general and they didn’t like us in particular.”

He went on to explain how he tried to turn its fortunes around. “So it was obvious to me that delivering the financial ­numbers was simply a ticket to play. For a ­business based on trust, our financial results would be unsustainable if we couldn’t deliver to customers and employees — and to the community interest.”

ANZ’s Shayne Elliott and NAB’s Andrew Thorburn took the sensible course by settling the ASIC BBSW case, and Westpac’s Brian Hartzer has erred in battling on because the bank “hasn’t ­broken any law”.

Elliott and Thorburn are seen as leading the bank repentance in a way that won’t stop any inquiry but may reform their institutions in a way that sees them gain share.

Bob Joss’s words in 1998 apply just as well today as they did then. The issues were excessive fees and bank branch closures.

He took time in his annual ­report to explain the issues in a way today’s leaders have not ­always done.

Noting the anti-bank community feeling, he said: “It is now our challenge to alter these ­perceptions, by communicating more openly with the community and airing the facts, so debate about our industry can be more ­informed.”

Joss laid out a table showing that each $1 in profit came from 81c in loan charges, 5c in transaction fees, 8c in non-transaction fees, 4c from ­trading, 1c from insurance and 1c from other sources.

So how was $1 spent? Fifty cents went to depositors and other lenders, 2c for the safety net against possible bad loans, 14c went to pay our staff, 16c for equipment, buildings, supplies and other expenses, 6c went to governments as taxes, 8c was dividends paid to shareholders as a return on their investment and 4c was profit put aside to invest in the bank.

This table hasn’t been repeated by the oligopoly in recent times. The mantra is the same as ever: “The only way to generate repeat business, more business, is to ­ensure our customers have a ­professional and personable ­experience every time they have contact with us.”

“Ultimately it comes down to us understanding our customers better, taking ownership of their financial needs, and being committed to delivering better solutions to them. It will only come from our staff grabbing hold of our customers’ issues and not letting go until they are resolved,” he said.

Joss noted: “Banks have always played a major role in society. They have a particular social responsibility to ensure they are well-run — making loans and accepting deposits in a manner which contributes to a safe and sound financial system so essential to all national economies. ­Beyond that, the community rightly considers that banks have a duty to contribute to society as a whole.

“There are many myths about bank profits, not the least that they fill shareholders’ pockets to the detriment of bank customers.”

Joss noted: “We are a healthy and profitable company, but our profits that are actually quite small compared to our size. At the end of September, our shareholders had invested $8.6 billion in Westpac and borrowed a further $128.7bn, so they had a total of $137.3bn invested and at risk in Westpac. And against this, our profit before abnormal was $1.3bn. That is, we made less than 1 cent of profit on each dollar of the $137bn of assets, which is about as low as any business sector in Australia. This means we have little margin for error in making loans. With a less than 1 per cent profit margin, we have to be right about 99 times out of 100 when we make loans and we have to be right consistently.”

Morgan in 2007 talked of the “importance of meshing the ­economic machine with the social system was now beyond question and this started our journey to ­sustainability”.

He and the then ANZ boss, John McFarlane, battled for ­bragging rights on the issue.

Turnbull dithers

Earlier this year the federal ­government slugged Australians $1.6bn dressed up as a bank tax and now the PM is floating the idea of a personal income tax.

Like his Treasurer Scott “cry me a river” Morrison, Turnbull doesn’t get the plot — Australians want leadership not an idea a day from the Prime Minister who had cancelled parliament.

The problem with Turnbull is we know he has almost lost his parliamentary majority, he can’t control a section of his backbench, and a big slice of the community hasn’t received a pay rise in years and want to know why.

Politically, Turnbull is like the man in the AAMI car advertisement: up at Ship Creek.

Against that background talking to a group of business leaders, adults mainly, you might think he would level with them, explain the issues and how he was to respond, but instead we got an upbeat assessment out of some dreamtime bedtime story.

The bank tax was seen as clever politics because everyone hates the banks. Trouble is, the banks won’t pay the tax — we will.

Forget for one moment the ­pitfalls of sector-specific taxes, the reality is this was a personal tax hike that ordinary Australians will pay for, not the big banks.

We will pay for the heist through lower dividends on the bank shares we own and higher fees or lower rates on our deposits because the banks will pass on the cost of the impost.

So, the same guy who took $1.6bn from our pockets in this year’s budget is now expecting us to jump for joy because he is ­putting a few cents back into our pockets maybe next year.

Deloitte’s Chris Richardson figures any sort of meaningful tax cut would cost $7bn we don’t have.

The good news is the forecast $29.3bn deficit is obviously coming down better than expected but last we saw it was still 1.6 per cent of GDP and it’s still something the government wants to run down.

This means any personal ­income tax will be paid for some other way like delaying the ­company tax cut, which wins ­political points but, of course, runs exactly counter to what Morrison was saying earlier in the week and indeed what Turnbull was talking about on Monday night at the Business Council of Australia ­annual ­dinner.

The ALP doesn’t want a big company tax cut but, like motherhood, can’t block personal tax cuts.

Turnbull switched on the vaudeville act in his speech on Monday, which left reality behind and his business audience shaking its heads