Bank Mortgage Wars: Big four slug it out
NAB fired the first shot with the "break up" letter.
The National Australia Bank [NAB] has the least to lose and the most to gain in the home loan sector, so this made a lot of sense for them.
NAB has the smallest home loan portfolio, and the CBA and Westpac home loan customers looked ripe for the plunder. Have a go yer mug!
Westpac and CBA want to retaliate.
NAB's business portfolio is their crown jewels. Hit em where it hurts most they must have thought.
This is competition. Wayne Swan and the ACCC would be pleased.
Westpac in the meantime are retelling the "banana smoothy story" to anyone who will listen [mostly the morons that are paying over the top mortgage interest rates, because they are a sucker for Nanna Gail's tales.]
What about the money? The fly in the ointment
The investment community are not happy. Better deals for customers mean lower profits, and that means falling share prices and lower dividends. But no customers means lower profits ,and being left standing in the NAB's drag race challenge means that the NAB would start to gain some badly needed traction in the home loan business at their expense. So doing nothing is not an option.
That brings up a question, So just who are the banks working for then.
The Government, the customers, or the investors [who actually own the business] That includes the fund managers who buy their stocks as part of their investment products, and low profits for banks mean a lower performing investment.
Well all three if the truth be told. That's if we don't include the managers and board.
Who has the biggest clout in the major banks?
Well today it looks like the shareholders and fund managers. The NAB challenge will put pressure on profit margins and that means earnings slides. it might even give them some good press in the eyes of borrowers. OK. So the NAB wins then? Not if Westpac and the Commonwealth Bank [CBA] have anything to do with it.
And the money side of town are worried that real competition between the big four banks is going to fierce, and lower earnings, profits and dividends would be the bitter harvest. Market share is the name of the game for the Big Banks. CBA and Westpac have it, and NAB wants to take it off them.
The drag race challenge. NAB v Westpac and CBA
National Australia Bank dropped a bombshell last month with the offer to pay the mortgage exit fees incurred by Westpac and CBA customers. Switching was in the news, and that is always a good place to begin a marketing campaign. [In the classic drag race manoeuvre, the under dog picks a fight with the top dog.]
Retaliation from Westpac was swift.
Westpac [and the CBA] have discount loans to new customers on offer. That's what NAB are already doing and it got them nowhere. And what about Westpac and CBA's existing home loan customers, locked into high interest rates? Too bad, if they are too dumb to give a crap and move thinks Westpac.
The CBA retaliation move: Relax the Lending Criteria. Easy money?
I thought that is what caused the GFC?
CBA revealed it had relaxed some of its lending criteria, in an effort to suck all the new mortgage business to its doors. [Bad move I say]. Swap good mortgage customers at premium rates for "iffy" clients at discounted rates? [CBA is getting mad, or is that going mad?]
The other problem is that there are few new customers, New home sales are down, home prices are lower and buyers are thin on the ground, and maybe waiting for further price erosion?
Governments and Customers rejoice in real competition.
These small bit exchanges have been welcomed by consumers and the government as a sign of real competition for a change.
But will the campaign run out of steam, or this all a show for the audience ; look we have real competition and we don't need all this new regulation stuff that Wayne Swan is planning.
Investors are not impressed
With the big four banks, our "money for jam" banks are one of the most profitable sectors of the Australian market right now. The big four banks alone are aiming for a combined earnings over $20 billion in 2011.
Money ain't cheap these days.
Funding costs are tipped to rise and lending over the next three years is forecast to slow, so profits falls were likely anyway.
Will the Fifth Pillar "do doughnuts" around the big four banks?
If the so called fifth pillar, the regional banks and building societies and credit unions get better funding arrangements, then its going to be really tight for the big banks to maintain their profitability, unless they do as the ANZ and start to look for opportunities in new markets overseas.
Mr Mortgage forecasts lower home loan demand over the next three years, better deals from non bank mortgage lenders and credit unions and raised status of mortgage managers in the coming months as the real competition in the mortgage space. The NAB verses CBA and Westpac drag race is just the show opener for things to come. If you are looking to switch loans away from CBA or Westpac, wait till the new rules are in place in July.
For new mortgage loans look at credit unions, and building societies and non bank home loans for lo doc lending.
