Friday, November 09, 2007

Banks Interest in Greed

Banks have tried to "talk up" the possibility of raising interest rates by more than the 0.25% rise in the rate set by the Reserve Bank, announced on Wednesday.

They claim they have been carrying costs asociated with the troubled sub-prime markets, mostly in the US. The decision to lend money in such markets forms part of a bank's overall business strategy and business decisions are made on that basis.

Let's look at the 2007 profits for the major banks (results reported to Sept-November 2007):
"Net profit for the year to September was $1.163 billion, an increase of 11 per
cent over 2006. After adjusting for hedge fund accounting, cash profit was
$1.160 billion, an increase of 13.1 per cent over the previous year."

"3.45 billion, 12 per cent higher than this time last year."

"Macquarie says its profit for the six months to September should be up strongly
on last year's corresponding result of $730 million",
and is expecting a record
profit for the current six month period.

"met forecasts with a 20 percent rise in second-half profit, driven by strong
loan growth, and said it targeted revenue growth above the industry average in
its key consumer banking"

"For the 12 months to 30 June 2007, statutory net profit after tax was $4,470 million", a 14 percent increase, and reportedly has less exposure to the US sub-prime market.

ANZ recorded a record profit of $4.18 Billion, an increase of 13 percent.
In the face of record profits and increases of 4-5 times that of inflation, and because they admit they made business decisions that have not made as much profit as regular mortgages and bank fees, and that therefore they need to increase lending rates of existing mortgages by more than 0.25% is, I think, wrong.

If the business decisions they made are not as profitable, then they need to examine their strategic plans, and redirect their money to customers who will generate a stable return on their investment ... but not increase their loan rates by more than 0.25%.