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Banks dubbed 'greedy thieves' after monster profit

Chris Zappone      August 11, 2010

Update Commonwealth Bank's monster profit may become an election issue with a senator slamming banks as ''greedy thieves'' and a consumer advocate saying struggling

households will be distressed by its magnitude.

The bank today reported its full-year cash profit swelled more than 40 per cent to $6.1 billion - or almost $700,000 an hour. That's the largest annual profit recorded by an Australian bank.

''If Labor and Liberal had any guts they would take on the big banks and make them pay for the years of pain they've caused ordinary Australians by ripping us off time and time again," said Family First Leader Senator Steve Fielding.
 
"The banks are a bunch of greedy thieves, ripping off Australians trying to live the dream of owning their home," said the Victorian senator, who is campaigning for re-election at the August 21 poll.

''The Commonwealth Bank's profit could feed a third world country for a year yet we let them get away with sending Australians into mortgage stress because of their unrelenting greed," he said.

Big bank profits are potentially hot political potatoes. On the one hand, the strength of Australian banks is one reason why the nation didn't hit the economic wall that many other countries' economies did. On the other, the global financial crisis has whittled down the number of banks competing for customers' business, resulting in fatter margins that are now feeding through to their bottom lines.

'Feather duster'

The opposition joined in, saying soaring bank profits highlight the federal government's failure to pressure the sector into lowering lending rates and fees.

''The banks are going to make as much profit as they can,'' Opposition treasury spokesman Joe Hockey told reporters in Sydney. ''But what it takes is a strong treasurer to stand up to them and say you need to make credit more affordable for small business and for home borrowers.''

Mr Hockey said the banks ''know that when Wayne Swan challenges them about mortgage rates, it's like being slapped with a feather-duster - it doesn't hurt.''

Mr Hockey also said the government's presence in international borrowing markets had made it harder for local banks trying to raise funds from the same pool of money.

The size of the worldwide bond market is about $US82 trillion ($A90 trillion), according to Bank for International Settlements data.

'Shop around'

For her part, Prime minister Julia Gillard urged Australian to vote with their feet against uncompetitive banks.
 
"I think from the perspective of Australians, they want to make sure they get a fair go from banks," said Ms Gillard said at a press conference today.
 
Ms Gillard said the government had made it easier for Australians by legislating against unfair exit fees.
 
"So I'd say to Australians, keep the pressure on your banks by shopping around," she said, according to comments posted on the ALP website.

Greens leader senator Bob Brown, meanwhile, said Treasury could consider a super-profits tax on banks, similar to the Mineral Resource Rent Tax on the mining sector.

"While many Australians are pulling their belts in, the Commonwealth Bank is raking in this huge profit," he said.

Mr Brown said the Greens supported legislation to remove $2 bank ATM fees which are already banned in the United Kingdom. Greens would also push for the creation of $5 million cap on bank CEO pay, he said.

Australians' debt totals about $1.3 trillion in mortgages, credit card debt and personal loan debt - a record level. Six interest rate rises since October - lifting rates off 50-year lows - have added about $300 to the average monthly mortgage repayment costs alone.

One sector of the community, though, will be cheering the Commonwealth Bank's record result, with dividends jumping 48 per cent in the second-half to $1.70 a share. For the year, that dividend swelled to $2.90, meaning the bank will hand back almost three-quarters of its earnings per share of $3.95 to investors.

Budget squeeze

Those shareholder gains, though, aren't likely to cheer consumers struggling to cope with tightening household budgets and rising prices.

''Consumers are distressed to hear these (profit) numbers at a time when they themselves are doing it tough,'' said Consumer Action Law Centre co-chief Catriona Lowe. ''We know they're doing it tough with recent rate rises.''

For its part, the bank defended the size of its profit, pointing out the scale of its taxes and dividends.  

The Commonwealth Bank ''employs 45,000 people with a  salary bill in excess of $4 billion and also makes a direct contribution to the communities that it operates,'' said spokeswoman Nichole Ismay.

''This includes the payment of over $2.9 billion in taxes, distribution of its profit to 800,000 mum and dad investors and millions of other Australians invested in superannuation funds,'' said Ms Ismay.

Those comments are echoed by Steven Münchenberg, chief of the Australian Bankers' Association, a group representing the major banks.

''The Australian economy continues to benefit from the solid performance of Australia's banking sector," said Mr Münchenberg, who noted that last year alone, banks contributed $8 billion in tax to public coffers.

''As we have seen, poorly performing banks in the USA and UK have collapsed, or been bailed out by their governments and communities suffered as a result," he said.

''Well-performing banks are also important to ensure that the dividend payments - that many Australians rely on, especially many older Australians - can continue to be paid," he said.

Competition queries

The fees that banks have generated to bolster their profits have been placed under increased scrutiny in recent months. Law firm Maurice Blackburn has announced plans to bring a class action lawsuit against 12 banks - including the Commonwealth Bank - to recover an estimated $5 billion in fees assessed consumers over the past six years.

The Finance Sector Union said debt-marketing by banks and lack of viable competition among the big four has underpinned the profits of CommBank.

''Whilst strong profits benefit the sector, we must also be asking ourselves whether the distorted competition and extreme profits of Australian banks are in the public interest,'' said FSU national secretary Leon Carter.

FSU's Mr Carter predicted the other major banks - ANZ Bank, NAB and Westpac - would announce similarly out-sized results.

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BusinessDay, with AAP

Read more: https://www.smh.com.au/business/banks-dubbed-greedy-thieves-after-monster-profit-20100811-11ywl.html#ixzz1njlqxIpd

Last modified onTuesday, 28 May 2013 05:59

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