tayser
October 1st, 2004, 04:31 PM
http://www.theage.com.au/articles/2004/10/01/1096527935626.html
BankWest creates an awkward moment for 'big four'
By Stephen Bartholomeusz
October 2, 2004
This week two senior BankWest executives have been criss-crossing the country, trying to generate interest and excitement in the launch of two new savings products. A West Australian regional bank launching new products? Ho hum.
Perhaps surprisingly, however, Chris Whitehead, head of retail, and Dave Hunt, who runs BankWest Direct, did excite interest out of all proportion to the news they were spruiking. There is a very good reason for that.
When those products are launched amidst a planned blitz of advertising, they will represent the first shot by BankWest's parent, the giant HBOS of Britain, across the bows of the major Australian banks.
The big local banks probably wouldn't take much notice of new products from a WA regional. They will, however, monitor very closely the attempt by HBOS to gain a foothold on the east coast.
HBOS, formed through the 2001 merger of Bank of Scotland and former building society Halifax, is Britain's biggest mortgage and savings bank. It has a market capitalisation approaching $75 billion, assets of $1 trillion-plus and more than 22 million customers. It also, after taking out the minorities last year, owns BankWest.
HBOS's initial strategy for expanding in Australia is a classical customer acquisition game plan, using price and simple products to attract customers' savings. If it can attract deposits and create customer relationships, it is in a position to sell other products and deepen the relationship.
By using a "direct" model for building the business outside WA, at least initially, HBOS can keep the costs low, the offering simple and the products competitive.
Because of its parentage, BankWest represents a major long-term threat to the local banks. HBOS's ambitions have to be in keeping with its size. Whether it creates a meaningful national business organically or seeks to acquire its way to critical mass, it will have an impact.
Unhappily for the domestic banks, HBOS may not be their only problem. There has been considerable speculation in recent weeks that GE Capital is negotiating to acquire the Wizard mortgages and financial services businesses.
Earlier this year GE Capital rebranded itself GE Money, a fairly clear signal of its intentions. After the 2002 acquisition of Westpac's AGC consumer finance business for $1.65 billion, GE emerged as a major player in consumer finance in this market, and the rebranding suggests it is about to become far more aggressive in consumer markets.
GE is already a force in specialised segments of the finance sector. If it could add Wizard's $18 billion loan book, origination and securitisation capabilities and 200-branch network to its own $16 billion of assets, 130 branches, 3 million customers in Australasia, and its "white label" credit card operation, GE would be a very serious player in the broader consumer finance sector.
Thus, two of the world's largest and strongest financial institutions appear to be ratcheting up the intensity of their efforts to expand in this market, just as some of the smaller players - Bank of Queensland and Suncorp-Metway - are also starting to expand in the south. Bank of Queensland, for instance, plans to open more than 100 branches in NSW and Victoria over the next two years.
The majors will be more concerned about the long-term inroads that might be made by HBOS and GE than the minnows, but it all adds to the competitive pressures at a time when structural pressures are emerging in the system.
The long, rate-driven, mortgage-driven, volume-based Indian Summer for the domestic banks is almost over. Accommodating monetary policy, their own dramatic productivity improvements, the Basle I capital adequacy rules - which provided an incentive for mortgage-based lending - and the tax incentives for geared investment, helped create the climate that has led to the generational leap in household debt.
The extraordinary rates of growth in household credit are slowing. Lending volumes - which helped the banks offset the big reductions in mortgage margins that have accompanied the rapid growth of non-bank mortgage originators and brokers - were unsustainable and are not being sustained.
All the banks are switching their attention to business lending, particularly to small and medium-sized enterprises, but are finding that the non-banks and brokers are also shifting their attention to that sector. Having lost pricing power in mortgages, the majors' pricing power in SME lending will come under threat.
All the banks, Commonwealth most dramatically, are shifting their focus to customer satisfaction and relationships and the sale of wealth management products to offset the anticipated slowdown in volumes.
The increase in competitive intensity coincides with the problems that are afflicting the system's biggest bank, National Australia Bank, which has been forced to respond aggressively to defend its unsettled customer base.
The prospect of competition from new and powerful players comes, therefore, at an awkward moment for the incumbents. Excess capacity, which the system will have, breeds irrational pricing for risk and, inevitably, mistakes.
There are few safety valves. The "four pillars" policy means there is not an ability to look to growth from merger synergies and, with the exception of NAB, none of the majors have significant operations outside Australasia.
The majors will be conscious the creation of HBOS, and its decision to commit to the Australian market through the take-out of the BankWest minorities, has introduced a new threat to their long-term game plans because there is now a domestic player that is not constrained by the four-pillars doctrine.
None of them would want to stumble badly as the credit cycle turns and the competitive pressures rise.
Next month's BankWest launches could be mistaken for just another bank advertising campaign. It is unlikely, however, that any of the majors will make that mistake.
_______
if BankWest can top ING's 5.25% I'm sold.
BankWest creates an awkward moment for 'big four'
By Stephen Bartholomeusz
October 2, 2004
This week two senior BankWest executives have been criss-crossing the country, trying to generate interest and excitement in the launch of two new savings products. A West Australian regional bank launching new products? Ho hum.
Perhaps surprisingly, however, Chris Whitehead, head of retail, and Dave Hunt, who runs BankWest Direct, did excite interest out of all proportion to the news they were spruiking. There is a very good reason for that.
When those products are launched amidst a planned blitz of advertising, they will represent the first shot by BankWest's parent, the giant HBOS of Britain, across the bows of the major Australian banks.
The big local banks probably wouldn't take much notice of new products from a WA regional. They will, however, monitor very closely the attempt by HBOS to gain a foothold on the east coast.
HBOS, formed through the 2001 merger of Bank of Scotland and former building society Halifax, is Britain's biggest mortgage and savings bank. It has a market capitalisation approaching $75 billion, assets of $1 trillion-plus and more than 22 million customers. It also, after taking out the minorities last year, owns BankWest.
HBOS's initial strategy for expanding in Australia is a classical customer acquisition game plan, using price and simple products to attract customers' savings. If it can attract deposits and create customer relationships, it is in a position to sell other products and deepen the relationship.
By using a "direct" model for building the business outside WA, at least initially, HBOS can keep the costs low, the offering simple and the products competitive.
Because of its parentage, BankWest represents a major long-term threat to the local banks. HBOS's ambitions have to be in keeping with its size. Whether it creates a meaningful national business organically or seeks to acquire its way to critical mass, it will have an impact.
Unhappily for the domestic banks, HBOS may not be their only problem. There has been considerable speculation in recent weeks that GE Capital is negotiating to acquire the Wizard mortgages and financial services businesses.
Earlier this year GE Capital rebranded itself GE Money, a fairly clear signal of its intentions. After the 2002 acquisition of Westpac's AGC consumer finance business for $1.65 billion, GE emerged as a major player in consumer finance in this market, and the rebranding suggests it is about to become far more aggressive in consumer markets.
GE is already a force in specialised segments of the finance sector. If it could add Wizard's $18 billion loan book, origination and securitisation capabilities and 200-branch network to its own $16 billion of assets, 130 branches, 3 million customers in Australasia, and its "white label" credit card operation, GE would be a very serious player in the broader consumer finance sector.
Thus, two of the world's largest and strongest financial institutions appear to be ratcheting up the intensity of their efforts to expand in this market, just as some of the smaller players - Bank of Queensland and Suncorp-Metway - are also starting to expand in the south. Bank of Queensland, for instance, plans to open more than 100 branches in NSW and Victoria over the next two years.
The majors will be more concerned about the long-term inroads that might be made by HBOS and GE than the minnows, but it all adds to the competitive pressures at a time when structural pressures are emerging in the system.
The long, rate-driven, mortgage-driven, volume-based Indian Summer for the domestic banks is almost over. Accommodating monetary policy, their own dramatic productivity improvements, the Basle I capital adequacy rules - which provided an incentive for mortgage-based lending - and the tax incentives for geared investment, helped create the climate that has led to the generational leap in household debt.
The extraordinary rates of growth in household credit are slowing. Lending volumes - which helped the banks offset the big reductions in mortgage margins that have accompanied the rapid growth of non-bank mortgage originators and brokers - were unsustainable and are not being sustained.
All the banks are switching their attention to business lending, particularly to small and medium-sized enterprises, but are finding that the non-banks and brokers are also shifting their attention to that sector. Having lost pricing power in mortgages, the majors' pricing power in SME lending will come under threat.
All the banks, Commonwealth most dramatically, are shifting their focus to customer satisfaction and relationships and the sale of wealth management products to offset the anticipated slowdown in volumes.
The increase in competitive intensity coincides with the problems that are afflicting the system's biggest bank, National Australia Bank, which has been forced to respond aggressively to defend its unsettled customer base.
The prospect of competition from new and powerful players comes, therefore, at an awkward moment for the incumbents. Excess capacity, which the system will have, breeds irrational pricing for risk and, inevitably, mistakes.
There are few safety valves. The "four pillars" policy means there is not an ability to look to growth from merger synergies and, with the exception of NAB, none of the majors have significant operations outside Australasia.
The majors will be conscious the creation of HBOS, and its decision to commit to the Australian market through the take-out of the BankWest minorities, has introduced a new threat to their long-term game plans because there is now a domestic player that is not constrained by the four-pillars doctrine.
None of them would want to stumble badly as the credit cycle turns and the competitive pressures rise.
Next month's BankWest launches could be mistaken for just another bank advertising campaign. It is unlikely, however, that any of the majors will make that mistake.
_______
if BankWest can top ING's 5.25% I'm sold.