Australian Politics General...

[luutzu]

It is the same with all businesses, I have a car and I needed a part, the spare parts person said I had to buy the whole assembly for $1000. Therefore I direct purchased it from overseas for $50 to my door, why should the dealer be allowed to gouge me?
I think, from memory the banks interest margin is about 2%, that isn't outrageous.
The interest on credit cards is, but nobody is forcing people to use them, a lot of the problem is the want it now mentality.IMO

When consumers have a choice, then yea, they can decide whether to take the deal or laugh in the business' face. With banking, there isn't much a customer can do but take what's on offer because it's practically the same at every other bank.

I haven't look carefully, only scanned through the commsec summaries, but I doubt the 2% is 2%.

It's more like 2 percent above what they paid depositors. Say they paid out 1.7% on average, but charges 3.7%. Hence, "2%". aka, 218%.

The only people who make 2% on their money at the bank are the lucky depositors.

 

[sptrawler]

When consumers have a choice, then yea, they can decide whether to take the deal or laugh in the business' face. With banking, there isn't much a customer can do but take what's on offer because it's practically the same at every other bank.

I haven't look carefully, only scanned through the commsec summaries, but I doubt the 2% is 2%.

It's more like 2 percent above what they paid depositors. Say they paid out 1.7% on average, but charges 3.7%. Hence, "2%". aka, 218%.

The only people who make 2% on their money at the bank are the lucky depositors.

My guess is it is 2% above their borrowing costs, they are basically borrowing it from the depositors, or they have to source it on the Worlds money markets.
10 years ago they were giving depositors 10%, 30 years ago 17%, it is market driven and very competitive.

 

[luutzu]

My guess is it is 2% above their borrowing costs, they are basically borrowing it from the depositors, or they have to source it on the Worlds money markets.
10 years ago they were giving depositors 10%, 30 years ago 17%, it is market driven and very competitive.

Yea, it's about 2% spread above their costs.

Say it costs them 1.7%, their spread is not 2% of that 1.7% [i.e. not 0.034%]. It's 2 percentage point above the 1.7 percentage point.

Or... (2+1.7)/1.7 = 218% margin.

I could be wrong since I look it up on wikipedia... that and making 218% on average doesn't seem like razor thin margin.

 

[Value Collector]

How about Inflation +1%.

To say that a bank is being fair in paying practically nothing, less than nothing, for people's money... that's just absurd. That's special interest talking, not fairness.

Where do you get off saying depositors are getting a good deal because their money is safe and they get access to the ATM, and yea, NetBank and bank statements too.

First, those also costs money after a certain number of usage. Not free. Bank statement being posted does get a $2 charge.

Don't mistake the fact that people have to put up with these because they have to, don't mistake that as them thinking it's fair or liking it. They have no choice, and the few banks that's left knew it.

It's just an abuse of their position.

That's pretty much what the pay historically,

 

[Value Collector]

So 820K people own "some" of CBA; assuming similar numbers also own the other banks... that's 3.2M.

They're not all Aussies aren't they? Some might hold more than just the one bank stock.

So maybe half of that 3.2M, or 1.6M aussies are risk-takers and what's good for the banks is good for them.

What's the population of Australia? 22M?

That's not the benefit of the few at the expense of the many?

Some are super funds with 100's or thousands of members, and then there is the people owning them via index funds and such.

And a family of 4 might have all the shares in Mum's name,

 

[Value Collector]

Yea, it's about 2% spread above their costs.

Say it costs them 1.7%, their spread is not 2% of that 1.7% [i.e. not 0.034%]. It's 2 percentage point above the 1.7 percentage point.

Or... (2+1.7)/1.7 = 218% margin.

I could be wrong since I look it up on wikipedia... that and making 218% on average doesn't seem like razor thin margin.

Their interest margin is 2.11%, they then have to pay their costs from that 2.11%.

The interest paid on other parts of banks funding is much higher than on normal deposits, look up the perls and other debt securities that are available at the banks, as I said though you have to move up the capital structure to get it.

 

[SirRumpole]

The interest paid on other parts of banks funding is much higher than on normal deposits, look up the perls and other debt securities that are available at the banks, as I said though you have to move up the capital structure to get it.

The bottom line of all that is profits, and they are not doing too badly, especially when they don't actually own their stock in trade.

 

[luutzu]

Their interest margin is 2.11%, they then have to pay their costs from that 2.11%.

The interest paid on other parts of banks funding is much higher than on normal deposits, look up the perls and other debt securities that are available at the banks, as I said though you have to move up the capital structure to get it.

That's the average interest margin though right?

So it's average percent profit on loans they made after average cost of their loans. Something like that yea?

A 2.1% margin isn't exactly 2.1% in the common sense of the word though. They are not making 2.1% profit, it's a 2.1% spread.

So if it costs them 2% to borrow, an average of 2.1% spread mean they're lending it out at 4.1%, or, making about 205% profit.

Even big pharma can't pull that kind of gross margin off man.


Yes, I know it's better if people just go out and own stocks in the banks rather than lending to it. No risk at all really... Just that not a lot of people who's being gouged are in a financial position to buy stocks. They might be living from paycheck to paycheck, pension annuity to another.

Point is, 200% margin is not bad. I know, there's executive bonuses to be paid; fines and settlements for dodgy advisors... but the high margin, the excessive fees, the quadropolistic position does kind help them make billions and billions yah?

 

[luutzu]

Some are super funds with 100's or thousands of members, and then there is the people owning them via index funds and such.

And a family of 4 might have all the shares in Mum's name,

For most people with money indirectly riding on the banks, such as managed funds or even their super... I don't think all the profit their investment earn from shares in CBA, say, would cover the costs of a couple of late fees or overdraw charges.

Despite the hype, what's good for CBA might not be good for the common Aussie being gouge by it. Even if that aussie own a few shares in CBA.

 

[luutzu]

That's pretty much what the pay historically,

Maybe, if people have over $100K and putting it in a long term deposit.

Even I could do better than that. Deposit $100K my way and I promise to keep it safe and pay 3% on top p.a. Deal?

 

[Value Collector]

So if it costs them 2% to borrow, an average of 2.1% spread mean they're lending it out at 4.1%, or, making about 205% profit.

No, it's total interest charged to customers - total interest paid to depositors = net interest

The net interest = 2.11% of the loan book.

This is not 2.11% profit, they still have to pay all their operating expenses out of that margin, and pay bad debts, remember the depositor doesn't have his money "at risk" any losses reduce the profit.

also only a percentage of deposits can be lent out at any one time, so the gross margin is much higher than the net margin.

 

[Value Collector]

The bottom line of all that is profits, and they are not doing too badly, especially when they don't actually own their stock in trade.

The best run banks are earning about 16% on share holders equity, that's not a huge number,

 

[luutzu]

No, it's total interest charged to customers - total interest paid to depositors = net interest

The net interest = 2.11% of the loan book.

This is not 2.11% profit, they still have to pay all their operating expenses out of that margin, and pay bad debts, remember the depositor doesn't have his money "at risk" any losses reduce the profit.

also only a percentage of deposits can be lent out at any one time, so the gross margin is much higher than the net margin.

Yea I know it's not net profit. Gross profit or something right?

Still, that's about 218% margin man. Not net profit margin, but margin on difference between their main costs [money].

So a depositor send the bank the money and earn, if they have a large chunk and take a 60 weeks term or something, would earn about 2.5%, max 3.5% if they have lotsa deposit.

That's 3.5% on their equity, yea?

How then is it "fair" that the bank's shareholders uses that cash and then earn 16% return on their equity. Is their risk four times more than the depositors? If higher risks versus no risk to depositors, aren't the no-risk taken care of by the gov't/taxpayers?


So banks make money at depositors expense because they can, because the gov't permit it. Not because it's fair or because there's high risk.

If a bank is run the way it's supposed to - lend properly, don't speculate and get creative with investments; don't do dodgy stuff that get you fined - there really is no risk to the business.

So the fact that they're taking on more risks is simply out of them being greedy and wanting more and more profit, knowing that profits they get to keep but losses the taxpayers will bail them out.

Can't say that that kind of risk are part of a normal banking/deposit-lend business so depositors have to get diddly and ought to be happy that they do.

That's not playing it straight. That's just rationalisation.

 

[SirRumpole]

The best run banks are earning about 16% on share holders equity, that's not a huge number,

Compared to about 3% for customers it is.

 

[Value Collector]

Compared to about 3% for customers it is.

Did you need to go back and have a look at the capital structure I laid out for you.

think about this example.

If I wanted to buy a house (or something else) that was worth $500,000 and I was planning on borrowing

$50K from you
$50K from person A
$150K from person B
$250K from person C (has government guarantee)

And if I default the losses will go in that go in that order

e.g., loan goes bad and house gets sold at a $75K loss, you absorb the first $50K wiping out your position, then person A absorbs the remaining $25K loss wiping out 50% of their position, but the other levels suffer no loss.

Do all the levels deserve to earn the same interest?

Does person C deserve to earn much at all considering they have almost no risk, and have a government guarantee?

you have to realise that the share holder is the first to lose both income and capital, so deserves a better return profile.

 

[Value Collector]

Is their risk four times more than the depositors?

I can think of heaps of situations where banks have gone under and shareholders have lost all or significant share of their capital, not so many cases of depositors losing, can you think of any?

 

[SirRumpole]

you have to realise that the share holder is the first to lose both income and capital, so deserves a better return profile.

I accept that, the question is "how much more".

There is virtually no competition in the banking industry in this country, they all offer the least rates they can and try and rip customers off as much as they can, and they probably get together to decide how low their interest rates will be.

At least they should be paying an "insurance premium" to the government for guaranteeing their losses, or returning more to the customers in return.

 

[Value Collector]

I accept that, the question is "how much more".

.

How much more would you want in the example I gave?

If it was your $50K that was the first to be wiped out in the deal, how much interest would you have to be paid to consider putting up that last 10% of the financing, considering a 10% loss on the loan equals a 100% loss for you.

Say it was a business loan? how much would you want to put up.

Consider that a shareholder will give up all profits and their equity, before any of the other levels lose, and some of those other levels below share holders but above depositors are earning like 6% - 8%, but are protected by the share holders equity, thats why I say 16% isn't huge.

CSL is making 40% on its equity making flu vaccines for government contracts.

 

[SirRumpole]

If it was your $50K that was the first to be wiped out in the deal, how much interest would you have to be paid to consider putting up that last 10% of the financing, considering a 10% loss on the loan equals a 100% loss for you.

Exactly how much risk do you think that bank shareholders are subject to in this country with a responsible prudential regulator, a government guarantee on deposits and only four major banks ?

I'd say it's extremely unlikely that bank shareholders in this country will ever lose their investment as the banks profits seem to be continually growing as are their share prices and dividends, so your theoretical calculations are just that, theoretical.

 

[Value Collector]

Can you give me an interest rate you would personally feel comfortable earning to take on that risk in the deal I outlined?

Exactly how much risk do you think that bank shareholders are subject to in this country with a responsible prudential regulator,

People probably thought the same thing In 2006 in the USA before the property market crash and the GFC, Plenty of institutions had a large part of shareholders capital wiped out.

a government guarantee on deposits

You understand that protects depositors and not share holders right?

I'd say it's extremely unlikely that bank shareholders in this country will ever lose their investment as the banks profits seem to be continually growing as are their share prices and dividends, so your theoretical calculations are just that, theoretical

.

famous last words.

But the flip side is that if you think share holders capital isn't at risk, then the depositors capital is not at risk, so your claims about the banks risking depositors money are bunk,

you can't have it both ways, either their is risk or there isn't, if there isn't then depositors money isn't being risked by the banks, if there is risk, then the shareholders are taking far more risk than depositors.