Talk Money with Tony Field – November 3, 2015


The big four Australian banks are continuing to make big profits here in New Zealand.

Westpac was the last of the four to announce its result. Yesterday it announced it had made $916 million here in New Zealand in the year to September.

That means the big four (ANZ, Westpac, BNZ and ASB) made $4.59 billion over the past year.

ANZ made $1.77 billion net profit. BNZ (owned by National Australia Bank) made just over $1 billion. ASB (owned by Commonwealth Bank of Australia) made $859 million over 12 months.

The profits have risen on the back of a growing economy, rising house prices and a growth in lending.

Many people will be wondering whether the banks' profits are excessive.

Unions point out that the growth in profits is increasing faster than the growth in the economy and is not being reflected in wage increases.

But banking experts say you need to remember that these are big businesses. The return on their assets tends to be a bit over 1 percent. That is not out of line with overseas examples.

There is an old saying that the only thing worse than a bank making big profits is a bank making big losses.

It is important for the economy that the banks have stable profitability.

Many investors believe this is about as good as it gets for the banks. So they have been selling.

The Australian banks' share prices are down around 20 percent this year. Yesterday Westpac slipped 2.4 percent on the New Zealand market and 2.5 percent in Australia.

ANZ was down 1.9 percent here and 2.3 percent on the Australian market.

CBA fell 2.1 percent on the Australian market and NAB was down 1.8 percent.

The banks face multiple challenges across Australasia. How do they grow their lending business in a market where competition is growing and the Australian and New Zealand economies are slowing?

They now need to set aside more money on their balance sheets as a safeguard against a possible rise in bad debts. The banks are also looking at increased spending on their IT systems.

The Australian market fell 1.4 percent. In comparison, the New Zealand market was almost unchanged, falling just three points.

The sell-off on the Australian market was partly due to the fall in the banks.

But investors were also spooked by two days of disappointing data out of China.

Media company Caixin's Chinese Purchasing Managers' Index was 48.3. Anything below 50 indicates contraction. The PMI measures activity in factories and workshops.

Today new statistics revealed that October ISM manufacturing was 50.1. That was slightly better than expected, but it was the fourth monthly decline in a row.

Investors shrugged off those numbers.

The S&P500 gained more than 1 percent and rose above 2100 points in intra-day trading. Energy stocks helped lift the index, rising over 2 percent.

The Nasdaq hit a new one year high in afternoon trading, rising more than 1 percent.

The New Zealand dollar is down over half a percent this morning against the Australian currency. It was trading at 894.33 cents at 8:30am.

The Kiwi was down almost half a percent against the US currency, at 67.29 cents.

The Kiwi was trading at 43.67 Pence, 81.23 Yen and 61.07 Euro cents.

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