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Record banking profits provide little reassurance

While most Australians have little sympathy for the banks, especially when they are amongst the most profitable financial institutions in the world , concerns have recently been raised as to how the majors will keep on keeping considering theunprecedented surge of consumer and business caution

Despite record high profits recently posted by the Commonwealth Bank of $6.83 billion for a full year – the highest ever in Australia – many of the banks are trimming back their earnings forecasts and adopting a more cost conscious approach to business.

An article in The Australian reveals that quarterly trading updates from he other three majors – Westpac, National Australia Bank and ANZ – show that the sector is set to eclipse last year’s earnings and reach profits of at least $26 billion.

However mortgage books are growing at a much slower pace than normal for all banks apart from the NAB and for the first time recently, the CBA was forced to defend the quality of its mortgage book amid growing fears among overseas investors that Australia is facing a national property bubble.

Trouble too for Westpac, with news that the bank anticipates tighter margins and as a result, plans to slash almost 1000 middle management positions in a bid to reduce costs.

Over at ANZ, a sharp 39 per cent drop in income from the bank’s trading business made a significant dent in their bottom line and forced chief executive Mike Smith to order the trading book to be scaled back to a more “neutral” position in an attempt to ride out the current market volatility.

UBS analyst Jonathan Mott said, “We believe the banks are becoming much more cost-conscious, given the challenging environment,” with investors expected to keep a close eye on cost management and “efficiency gains” during the next six months of mixed local economic conditions.

As I said few of us have sympathy for the banks, especially over the last few years when they failed to pass on some of the rate cuts from the RBA.

But the banks have spent these last few years after the GFC getting ready for times like this. They knew that there were still huge financial problems overseas and shored up their balance sheets to make themselves less dependent on overseas funds if the economy faltered again. And it has!

For example the CBA, which had $10 billion in its coffers in June 2007, now has $100 billion stashed away.

Considering how important it is for our property markets and for you and me as property investors to have a sound banking system, I’m happy when I hear the banks are making a profit.

Just look at what the alternative would bring….

We don’t really want to be in the position that our banks shut shop or bring the property investment markets to a halt like they did in the USA or in England, do we?



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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