Jessica Irvine | News Limited Network | February 27, 2013
Try this pop quiz: How many of the following financial institutions do you think are owned by the big four banks?
St George, BankWest, UBank, RAMS Home Loans, Aussie Home Loans, Wizard Home Loans, Bank of Melbourne, Bank SA.
If you answered “all of the above” (with regulatory approval pending for Commonwealth Bank to increase its stake in Aussie from 30 per cent to majority control) you’d be correct. Full points.
The tentacles of Australia’s big four banks are stretching out over the entire financial services industry, gripping all within their power.
It’s the wolves dressed in sheep’s clothing approach to banking and I smell a rat.
In a recent survey of 1000 Australians by Abacus, the industry association for credit unions and building societies, just 53 per cent of those surveyed were aware that St George is now owned by Westpac, having taken it over in a GFC shotgun marriage in 2008.
And that was the most informed we got.
An even slimmer 36 per cent were aware that BankWest was also taken over by Commonwealth Bank in 2008 in a similarly hasty GFC stitch up, waved through by the competition regulator.
Just one in five knew that UBank is simply a brand created by National Australia Bank and just one in eight that Aussie Home Loans is today one-third owned by Commonwealth Bank with plans for a majority takeover.
Big banks have also swallowed a sizeable chunk of the mortgage broking industry an industry that makes a living from the perception that it is independent from the interests of the lenders it refers people to.
These independent advisors are now in the uncomfortable position of giving advice to borrowers on the product of their own employer, along side other lenders of course, and taking different levels of sales commission along the way. Did somebody say conflict of interest?
National Australia Bank is by far the biggest bank operating in the mortgage broking space, having acquired mortgage broking networks Choice Home Loans, Plan Australia and FAST in 2009. Combined, these brokerages cover 5,500 mortgage brokers out of a total of 13,500 brokers Australiawide. NAB has rebadged the businesses “Advantedge”.
Elsewhere, Westpac took out RAMS Home Loans in 2008.
Commonwealth Bank will soon be majority owner of Aussie Home Loans and its network of 1000 or so brokers. In 2009, Aussie bought out the Mark Bouris founded Wizard Home Loans group, leading to the disappearance of that brand too.
Mark Bouris’s latest offering, Yellow Brick Road financial services group, has done a deal with Macquarie to write its mortgages.
Oh and the big banks have their tentacles in wealth management too. Have done for some time.
In 2000, CBA bought out Colonial Group. A month later NAB bought Lend Lease’s MLC businesses. Westpac swallowed BT Financial Group in 2002. In 2009, ANZ took full ownership of the wealth management arm of ING Australia and renamed the business OnePath.
Last year, Commonwealth Bank took over Count Financial, which in turn owns the mortgage broking network Finconnect.
By retaining the brand names of all the businesses they acquire, the big four banks are able to give consumers the illusion of competition while capturing the lion’s share of the market.
The underlying strategy is to lock down customers by bundling them into so many products with the one bank, from home loans, credit cards, business loans, share broking advice, insurance to super, that the prospect of leaving will be just too overwhelming.
And it’s working.
Reporting its latest multi-billion dollar profit, Commonwealth Bank produced a slideshow for investors boasting that the average number of CBA financial products per CBA customer has risen from 2 in 2007 to 3 today. Banks are becoming a one stop shop.
Meanwhile, Commonwealth Bank can boast a return on investor funds of 18.1 per cent in last six months of last year. A pretty sweet return for a business that is essentially government guaranteed.
Too big to fail, too big to control.
Make no mistake, the four pillars of Australia’s banking system have never been stronger, as competitors crumble around them, or, rather, they devour everything in their path. Recent home loan figures show 9 out of 10 new mortgages signed in Australia are with the big banks.
This lack of competition means consumers pay higher interest rates than otherwise.
In a parliamentary testimony last Friday, Reserve Bank deputy Governor Phillip Lowe urged consumers to negotiate with their bank for a better deal on the nation’s five million mortgages.
“You do not actually have to switch banks to get a better deal. In the current environment, if you go to your bank and say, “I’m going to switch unless you lower my interest rate,” it often happens.”
But that such discounts even exists suggests competition is not strong enough.
Momentum is gathering for a comprehensive review of the banking system, on par with the Willis Inquiry initiated by the former Howard-Costello government in 1997.
Shadow Treasurer, Joe Hockey, has committed to another “son of Willis” inquiry.
Credit unions have banded together to launch the balance banking campaign that you can follow at www.balancebanking.com.au A disgruntled former BankWest employee, Adrian Bradley, has registered a new political party to run at this election, the Bank Reform Party, which is planning to run candidates in Wayne Swan and Hockey’s seats.
Any inquiry must focus on unmasking the labyrinthine ownership structure of the banking industry so that customers can make a genuine and informed choice about who they bank with.
Don’t be fooled. Don’t bank with a big bank by mistake.