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Topic # 239918 10-Aug-2018 16:03
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I propose that Aussie owned banks in New Zealand are our "frenemies": organizations that combines the actions of a friend and an enemy.

https://en.wikipedia.org/wiki/Frenemy

In a Newshub article, they called it "rent seeking"

https://www.newshub.co.nz/home/money/2018/07/are-aussie-banks-rent-seeking-in-nz-and-what-can-we-do-about-it.html

"At the core of the problem has been the huge profitability of the Australian banks. It has encouraged behaviours which have been horrible for consumers.

Economists call this behaviour 'rent seeking' - extracting ever more from the economy without adding to its wellbeing. Anyone doubting this should spend a day listening to the Australian inquiry.

Is the same thing happening in New Zealand? The numbers would suggest yes, because:
  • Banks make more money relative to GDP in New Zealand than in Australia

  • Ranking New Zealand company profitability, the Australian banks sit at 1, 2, 3 and 4, all well ahead of Fonterra, Spark and Air New Zealand

  • While employing lots of New Zealanders and paying significant taxes here, they still earn 2.8x more in profits than they pay their employees
Bank profit is essential to the health and running of our economy, but how much and at what cost? The numbers are very revealing.

In 2017, Australian bank profits in New Zealand were 2.8 percent of GDP vs 2.2 percent in Australia so they are extracting 25 percent more in profits from our economy than they are at home. These numbers look shocking next to the 1.4 percent of GDP banks made in Japan, 1.2 percent in the US and 0.9 percent in the UK in 2016.

And while global rankings do not typically include New Zealand, these numbers indicate that our banking system is amongst the most profitable in the developed world. This is not a number to be proud of!"

I'd agree. We need an official inquiry here in New Zealand. I'm surprised the politicians haven't jumped onboard.

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  Reply # 2071495 10-Aug-2018 19:43
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I have a cuzzie who's a very senior economist working for the federal government in Canberra, banking regulations etc.  Last time he was here, meeting with our PM and finance minister, RB governor etc, I caught up with him.  He was pretty scathing on NZ regulation/enforcement.  His answer as to how that situation you mention exists is "because we let them". "But why" is the better question.  The answer might not be so simple either.

 

 


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  Reply # 2075088 17-Aug-2018 23:33
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I know, it's a sickening shipping of local cash offshore, and for what? But OTOH it's not like there is no competition.

 

I made the move to Kiwibank and the bank's profits from me stay in NZ.


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  Reply # 2076015 20-Aug-2018 09:28
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Less competition.





Mike

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  Reply # 2076106 20-Aug-2018 11:12
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MikeAqua:

 

Less competition.

 

 

But not from "not enough players in the market"  surely.

 

ASB, ANZ, Westpac, BNZ, TSB, Kiwibank, Heartland, SBS, Rabobank, others I've probably forgotten.

 

It's hardly a monopoly or duopoly such as exists in the supermarket business, or market concentration for example in the insurance business.


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  Reply # 2076118 20-Aug-2018 11:33
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Banks make more money from mortgages with houses at $1 million rather than houses at $1000?  An exaggeration but still true?

 

 


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  Reply # 2077084 21-Aug-2018 20:52
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Simple. High levels of privately held debt in NZ. In the region of 160% of GDP. So interest has to be paid on that debt. And the banks take a cut of that interest.





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  Reply # 2077092 21-Aug-2018 21:37
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Aredwood: Simple. High levels of privately held debt in NZ. In the region of 160% of GDP. So interest has to be paid on that debt. And the banks take a cut of that interest.

 

No - it's not that simple.

 

The OP argues that Aussie banks made more $$$ as % of GDP in NZ than in Aus - almost certainly true.

 

The NZ household debt to GDP is about 92%

 

Yet the Australian household debt to GDP is higher than NZ - about 122%.

 

The approx 160% figure you cite is probably NZ household debt to household income.  


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  Reply # 2081236 30-Aug-2018 10:05
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Fred99:

 

The OP argues that Aussie banks made more $$$ as % of GDP in NZ than in Aus - almost certainly true.

 

The NZ household debt to GDP is about 92%

 

Yet the Australian household debt to GDP is higher than NZ - about 122%.

 

 

But what is the composition of household debts in those countries? 

 

For example mortgage vs credit card.

 

How much of the private debt in each country is with banks rather than finance companies.

 

 





Mike

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  Reply # 2081238 30-Aug-2018 10:06
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Fred99:

 

But not from "not enough players in the market"  surely.

 

ASB, ANZ, Westpac, BNZ, TSB, Kiwibank, Heartland, SBS, Rabobank, others I've probably forgotten.

 

It's hardly a monopoly or duopoly such as exists in the supermarket business, or market concentration for example in the insurance business.

 

 

Not a lack of numbers, a lack of competition.

 

 





Mike

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  Reply # 2081240 30-Aug-2018 10:14
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In the distant past I had someone from ASB comment that banks here 'compete on service, not price'. In other words, they all squeeze us for everything they can get.

 

 

 

 





I reject your reality and substitute my own. - Adam Savage
 


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  Reply # 2081261 30-Aug-2018 10:49
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MikeAqua:

 

Fred99:

 

But not from "not enough players in the market"  surely.

 

ASB, ANZ, Westpac, BNZ, TSB, Kiwibank, Heartland, SBS, Rabobank, others I've probably forgotten.

 

It's hardly a monopoly or duopoly such as exists in the supermarket business, or market concentration for example in the insurance business.

 

 

Not a lack of numbers, a lack of competition.

 

 

 

 

Sure - I agree with that.  If there's a sufficient number of players in a market, price competition should follow and automatically drive down prices.

 

If it doesn't, then that suggests there's a problem -  collusion to reduce competition / keep profits up is happening somewhere, somehow.

 

What if the collusion isn't between banks in the way of a cartel - the banks getting together and agreeing to fix charges - but between government and banks, government "allowing" or turning a blind eye to anti competitive behaviour? For example - if government regulated with a heavy hand, then there'd be the possibility of economic harm - if banks decided that the return from NZ operations didn't justify the risk.  Banks also pay a significant amount of tax.  Why would government want to act to reduce bank profits when that reduces their tax take?  Same with power companies - with an added incentive for government to not reduce profits - as they also get a dividend from profits as they're owners/part owners under the mixed ownership model.

 

 


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  Reply # 2081266 30-Aug-2018 10:52
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Fred99:

 

MikeAqua:

 

Fred99:

 

But not from "not enough players in the market"  surely.

 

ASB, ANZ, Westpac, BNZ, TSB, Kiwibank, Heartland, SBS, Rabobank, others I've probably forgotten.

 

It's hardly a monopoly or duopoly such as exists in the supermarket business, or market concentration for example in the insurance business.

 

 

Not a lack of numbers, a lack of competition.

 

 

 

 

Sure - I agree with that.  If there's a sufficient number of players in a market, price competition should follow and automatically drive down prices.

 

If it doesn't, then that suggests there's a problem -  collusion to reduce competition / keep profits up is happening somewhere, somehow.

 

What if the collusion isn't between banks in the way of a cartel - the banks getting together and agreeing to fix charges - but between government and banks, government "allowing" or turning a blind eye to anti competitive behaviour? For example - if government regulated with a heavy hand, then there'd be the possibility of economic harm - if banks decided that the return from NZ operations didn't justify the risk.  Banks also pay a significant amount of tax.  Why would government want to act to reduce bank profits when that reduces their tax take?  Same with power companies - with an added incentive for government to not reduce profits - as they also get a dividend from profits as they're owners/part owners under the mixed ownership model.

 

 

The incentive is for the government to not tax too heavily. If company's extract too much profit, the government ends up paying more for welfare etc. Bear in mind that if I have an extra dollar from not paying my power bill, I have an extra dollar to spend on something else and the government gets GST from that.


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  Reply # 2081292 30-Aug-2018 11:34
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Fred99:

 

Banks also pay a significant amount of tax. 

 

 

It's mostly customers who pay the tax via RWT.   Banks engage in business practices that shift overheads into NZ to reduce their tax liabilities in NZ. 

 

I think you would be shocked by how little tax they pay as % of revenue - and how high that revenue is as % of capital or operating costs or ...

 

Big-aussie-bankers are literally pumping billions each year out of NZ into Australia.

 

 





Mike

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  Reply # 2081324 30-Aug-2018 12:28
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MikeAqua:

 

Fred99:

 

Banks also pay a significant amount of tax. 

 

 

It's mostly customers who pay the tax via RWT.   Banks engage in business practices that shift overheads into NZ to reduce their tax liabilities in NZ. 

 

I think you would be shocked by how little tax they pay as % of revenue - and how high that revenue is as % of capital or operating costs or ...

 

Big-aussie-bankers are literally pumping billions each year out of NZ into Australia.

 

 

There was a big IRD case ~10 years ago where the profit-shifting tactics of the banks were closely examined resulting in legal decisions and payments from the banks in the order of 100s of millions.

 

Yes, the banks pump billions out of the country - but what is it as a % of PROFIT - you don't pay tax on your revenue (do you apple, etal).

 

 

 

In general, NZ is milked by large Oz companies, from jbhifi , bunnings all the way to the banks.

 

 




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  Reply # 2098364 28-Sep-2018 19:46
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https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1213366

'Profits over people': Banking royal commission releases interim report
By: Frank Chung

Treasurer Josh Frydenberg has delivered a scathing rebuke to financial institutions for their "greed"-driven misconduct — and the banking regulator for not doing enough to punish poor behaviour.

Frydenberg was speaking today at a press conference in Melbourne to release the banking royal commission's interim report canvassing shocking revelations about misconduct in the financial sector unearthed over four months.

The interim report covers the first four rounds of hearings focusing on consumer lending, financial advice, loans to small and medium businesses, and banking conduct in regional and remote communities.

"The interim report delivered today to the Governor-General shines a very bright light on the poor behaviour of our financial sector," Frydenberg said.

"Banks and other financial institutions have put profits before people, greed has been the motive as short-term profits have been pursued at the expense of basic standards of honesty. Too often simply selling products has become the sole focus of attention."

Frydenberg said the culture and conduct was reflected in the banks' remuneration practices, with "almost every piece" of misconduct identified in the report "connected directly to some monetary benefit".

He said the report made it clear that, while behaviour was poor, "misconduct either went unpunished or the consequences did not meet the seriousness of what has been done".

In his report, Commissioner Kenneth Hayne, QC, said the Australian Securities and Investments Commission "rarely went to court to seek public denunciation of and punishment for misconduct" while the Australian Prudential Regulation Authority "never went to court".

"Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn-out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable 'concerns' about the entity's conduct," Hayne said.

"Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a 'community benefit payment', but the amount was far less than the penalty that ASIC could properly have asked a court to impose."

Hayne said "too often, entities have been treated in ways that would allow them to think that they, not ASIC, not the parliament, not the courts, will decide when and how the law will be obeyed or the consequence of the breach remedied".

Frydenberg said this was "clearly unacceptable and cannot continue".

The report also raised the question of whether existing laws should be administered or enforced differently, and whether new laws should be introduced or the system should be simplified.

"The law already requires entities to 'do all things necessary to ensure' that the services they are licensed to provide are provided 'efficiently, honestly and fairly'," Hayne said.

"Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, 'Do not do that', would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?"

Frydenberg said the report did not include specific recommendations or referrals to appropriate agencies for enforcement.

"This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system," he said. "Australians expect and deserve better."

...

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