Keeping the Economy Afloat One Broker at a Time
That didn’t take long at all.
The report from the Royal Banking Commission is less than five weeks old.
Six months of testimony.
Some 10,000 submissions.
Revelation after revelation.
The whole dog and pony show was meant to rattle the banking system to its core.
Yet, the banks aren’t scared…
Already the recommendations from the report are falling apart…
Banks are bad but Hayne doesn’t care
The entire Royal Banking Commission was estimated to cost tax payers $75 million.
At least, that was the guess before it got started.
Knowing how government departments work, I’ll wager it actually cost a whole lot more.
Tax payers paid a ridiculously amount of money to discover that banks are bad.
The entire multi-billion-dollar Aussie banking sector profited from our ignorance.
Managements push for sales at the expense of customers is just one example.
The cross sell into financial products with no consideration for a person’s financial position — something which completely ignores financial license holder’s fiduciary duty I might add.
Then there were the fraudulent loans, the lending to dead people and giving a home loan to anything with some bricks and a title.
Essentially the enquiry was a $75 million-dollar confession from top brass bank CEOs that they’d been naughty.
The entire Hayne report had a tone of moral outrage…yet there was no real attempt at major bank reform.
The report noted repeatedly that the aggressive sales culture within banks saw them pursue short-term profits over their fiduciary duty. With the Hayne review writing:
‘Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion of roles extended well beyond front line service staff. Advisers became sellers and sellers became advisers.’
To date, the only real action has been the token scalps.
Two CEOs from National Australia Bank resigned three days after the Hayne report was released.
Don’t cry for them though.
Both Andrew Thorburn and Ken Henry are smart, well-educated men that sat at the top of a money lending machine in Australia.
They will work again.
There’ll be no trip to the Centrelink queue for them.
In addition to a fairly scathing review of NAB’s CEO’s, the Hayne report narrowed in on the mortgage brokering sector.
Rather than suggest structural banking reform, the report attacked Australia’s mortgage brokers.
Suggesting there should be an end to trailing commissions for all mortgage brokers.
Yet, unlike the banks structurally bad management, only a handful of mortgage brokers did evil deeds…
Targeting the 1%
Out of all the complaints, all the forms and all those hours spent listening to testimony, the Hayne review homed in on just one of them: a sector that employs roughly 20,000 people Australia wide.
National Australia Bank employs 30,000 people Australia wide.
Yet the Hayne review targeted the $2 billion mortgage broking industry, suggesting that there needs to be an end of trailing commissions going forward.
Which is odd.
As possibly less than 1% of the mortgage brokering industry were found to be doing the wrong thing.
That means the $364 billion dollar ‘big four’ banking sector was basically given a free pass.
Initially both sides of politics said they would back the Hayne review in full.
Funny how things change in a few weeks.
Late yesterday, Treasurer Josh Frydenberg said the Liberal government would ditch the biggest recommendation from the Hayne review.
That is, they no longer plan to back the removal of trailing commissions for mortgage brokers.
I’ve seen jellyfish with stronger back bones.
The new take is nothing more than a complete backflip from the government.
Frydenberg told the press that instead the government would review the Hayne recommendation three years from now, if still in power.
Apparently lobbyists from the mortgage broking industry put the heat on the Coalition government so they didn’t end trailing commissions.
Now, I anticipated the mortgage broking industry would achieve this.
However, I didn’t expect it would within five weeks.
More to the point, I don’t think the change of heart has anything to do with protecting some 20,000 jobs.
Instead, I reckon it has more much to do with protecting Aussie banks…and our $1.6 trillion mortgage sector…
Keep that credit machine lending
Not only was the Hayne review a win for the banks, it was yet another reminder of just how crucial the lending cycle is for the Australian economy.
Mortgage brokers account for 55% of all Aussie home loans. That’s up from 45% in just five years.
The latest batch of finance data shows that some $30 million new home loans were created in November last year. Which means that brokers were responsible for half of that.
Not only that, as Aussie banks have begun reducing the amount they are willing to lend, mortgage brokers have access to lenders other than the big banks.
In other words, they open up alternative channels of credit.
Places like community banks and second tier lenders. Lenders that don’t always have to comply completely with any rules imposed by APRA.
And if we want to keep the housing prices out of a complete price crash…these avenues of alternative credit are vital to keep lending going.
Australia is in in the middle of a housing slump.
And because mortgage brokers have access to alternative lending, they are most likely providing greater assistance than the major banks.
In short, a very small sector of the Aussie economy is keeping the flow of credit going.
Given big banks lack of desire to lend, perhaps mortgage brokers are the ones propping up what little lending is happening in the Aussie economy right now.
This is possibly why the Aussie government changed their tune.
They discovered that without mortgage brokers, lending in Australia stops completely.
The change of heart isn’t about protecting brokers…the Coalition just decided to continue to prop up the lending machine a little longer.
Until next time,