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Financial Services

  • A clear leader emerges among Aussie banks

    rogermontgomeryinsights
    September 9, 2009

    Nothing beats living on an island and nothing beats living on an island and owning the only bank. The cozy banking oligopoly that exists on the island of Australia as well as high switching costs for customers has produced all the benefits associated with a wide competitive advantage.

    Are you going to bother moving if your bank charges you a few cents more for each ATM withdrawal, EFTPOS transaction or EFTPOS cash-out? With 70 million ATM transactions per month, 150 million EFTPOS and EFTPOS cash out transactions per month and 30 million debit card accounts, a few extra cents charged per transaction and account is a valuable revenue generator for banks with very little additional work or cost and virtually no risk of customer loss.

    In the past the banks were all the same from an investors perspective too, but there’s a change in the air. The recent capital raisings have done significant damage to the value of three of the major four banks in Australia.

    When ANZ, NAB and WBC were raising capital to shore up their balance sheets, CBA was raising capital to take advantage of opportunities in a distressed market, and acquired BankWest. It shored up its profitability in the process and now has the highest ROE of all the banks at 19% and based on consensus estimates will return 21% on its equity for the next 2 years. This compares favourably with the ANZ (11%), NAB (12%) and WBC (13%).

    After two decades, a clear leader for investors has emerged in Australian banking.

    By Roger Montgomery, 9 September 2009

    by rogermontgomeryinsights Posted in Financial Services.