Westpac has written the playbook – Can someone send it to our Politicians?!

Romano Sala Tenna

Katana Asset Management

The problem however arises when the beloved representatives of the people in Canberra enter the fray.   Whilst ‘bank bashing’ has been a national pastime in Canberra for many decades, it is time that our elected members stopped playing popular politics and started to put our country first.   Specifically in this instance by acknowledging that a bank’s cost of doing business has increased, that clients need to share a part of this cost and that it is actually a good thing for our country as it will help to steady the property market.

Part of the problem is that Politicians and some media consistently refer to the ‘multi-billion’ dollar profits that banks generate – as if generating a profit is some great vice.   As Winston Churchill wrote all those years ago ‘It is a socialist idea that making profits is a vice; I consider the real vice is making losses.’

What Political criticism ever fails to recognise is the size of the capital that is required to generate ‘multi-billion dollar profits’.    Each of the top 4 banks have approximately $60 billion of shareholder funds invested – ie a total of almost $240 billion between them.   And that’s just shareholder funds – it does not recognise the many multiples of this that the banks require in assets to undertake large scale lending.

We would acknowledge that generating a $7bn profit on a small capital base would be obscene and worthy of much closer scrutiny.  But when a large bank has $60 billion of shareholders money invested alongside $100’s of billions in assets, then we would expect them to generate a reasonable return on their investment.

So a message to our politicians: get with the agenda, stop bashing the banks and recognise that by raising their lending margin, the big banks will make it easier for the RBA to further stimulate the Australian economy.

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Romano  Sala Tenna
Portfolio Manager
Katana Asset Management

Katana Asset Management was founded in September 2003 as a boutique investment management firm. Katana employs an all opportunity investment mandate being style, sector and market cap agnostic.

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