Westpac, NAB and ANZ were like three peas in a very profitable pod this week but in real terms one of them was clearly the worst performer.
Westpac, NAB and ANZ were like three peas in a very profitable pod this week but in real terms one of them was clearly the worst performer.

Big bank deliver very similar profits

THE really remarkable feature of the three big bank profit reports this week was how similar they really were.

They were like three peas in a very profitable pod.

On one level that should not be surprising. Unlike big banks in Europe, the UK and the US, all four of our big banks have broadly the same business structure - bluntly, they are all essentially super-sized building societies making home loans.

Yes, they also have "business banks" and "institutional banks" - but even there they make most of their supposed "business" loans secured not against the business but against residential property.

The one thing a "good" Aussie banker knows is if you make a loan of, say, 80 per cent of the value of a house at the time it's made, you are unlikely to lose money.

After you get through the first year, escalating property values will soon give you an even bigger security buffer.

That's why the government's $40bn Business Recovery Loan Scheme for SMEs was all of "interesting", revealing, and a challenge.

Under the scheme the one thing the banks could not do was secure their loans against residential property.

Even when the government was guaranteeing to pick up the tab for 50 per cent of any loan loss, the banks somehow couldn't seem to make any loans: still too risky. Now the government is picking up 80 per cent of any loss - although of course the banks keep 100 per cent of any profit.

Even so, the banks are all demanding interest rates significantly higher than they charge on home loans.


NAB CEO Ross McEwan. Picture: Aaron Francis/The Australian
NAB CEO Ross McEwan. Picture: Aaron Francis/The Australian


On the surface the three banks that reported half-year profits this week - the fourth, easily the biggest of these "super building societies", the CBA, had its half-year profit report three months ago - reported very different results.

Westpac said - sorry, shrieked - that its profit had leapt 256 per cent. NAB on Thursday reported its profit was up 95 per cent, while ANZ said its profit was actually down 10 per cent.

How incompetent must ANZ bankers be: surely they should all be sacked along with the board of directors that employed them?

Well, actually no; the ANZ was quirkily comparing its March half profit with the immediately preceding September half; the other two were doing the normal thing of comparing with the previous March half year.

The ANZ "could have", should have, reported its profit up 125 per cent March to March. Now that's pretty similar to NAB's 95 per cent, but it seems the two Melbourne banks were well overshadowed by Sydney-based Westpac. So, plaudits to the northerners?

Actually, no. In real terms Westpac was the worst performer - and the "new broom team" of chairman John McFarlane and CEO Peter King the naughtiest for not spelling out the full story to shareholders.

As I've explained, the results have been distorted by two big factors.

A year ago, facing the government-mandated lockdown recession, the banks either panicked or acted prudently. They made huge provisions for loan losses that never arrived.

In these latest results, all three have been boosting profit by writing back some of those provisions - like a negative provision.

The second factor was the big provisions they were still making last year for their naughty behaviours. The biggest being Westpac's $1bn fine for money laundering.

These factors had the effect of artificially reducing their March 2020 results, artificially boosting their March 2021 results, and so producing those spectacular percentage profit increases.

In real underlying operating performance terms, NAB was down 2 per cent, ANZ down 3 per cent and Westpac down, well, 11 per cent.

It was "funny" how Westpac went out of its way to not make that clear; although NAB was almost as naughty. Only ANZ spelt it out.

Originally published as Big bank deliver very similar profits