The big four Australian banks and their record profits

Vanguard March 2012 p. 3

In the last few weeks of 2011, three of the big four Australian banks announced record profits, with the other, the Commonwealth, having earlier produced half-yearly results which showed that it too was on track for record profits in the 2010-2011 financial year.  

The big four banks in Australia; ANZ, Westpac, NAB and the Commonwealth effectively monopolise the Australian banking system. Not only that, but according to current stock market valuations they are four of the five biggest companies in Australia.

Looking at the recent profit announcements we find the following; ANZ in the 2010-2011 financial year achieved $5.6 billion in profits – up 19% on the previous year.

Westpac did better with $6.99 billion, with its subsidiary St George contributing $1.17 billion to the total. NAB posted a cash profit of $5.22 billion, also a rise of 19% on the previous financial year’s figure. Commonwealth Bank reports its profits differently to the other three, preferring to release its figures half yearly and out of sync with the others. Nonetheless, the Commonwealth’s profits totalled $6.8 billion for the 2010-2011 period.

The aggregate of these reported profits is $24.61 billion and represents approximately 90% of the profits in the banking sector.

In comparison, the smaller regional banks such as Bank of Queensland (BoQ), Suncorp Bank, Bendigo and Adelaide Bank and Members Equity also had improved profit performances in the 2010-2011 financial year. These four regional banks had pre-tax (net) profits of $828 million, up from $713 million the year before. The profit figures for these regional banks throw those of the big four into sharp relief.

Contributing to the record profits of the big four banks has been cost-cutting. Westpac shed 767 positions in the past year, with another 560 announced at the start of 2012. NAB reported that it had cut 550 staff in the last 12 months.

In addition, all four of the banks have managed to divest themselves of a number of debts that turned bad as a result of the Global Financial Crisis (GFC). The big four Australian banks have avoided the worst of the financial turmoil associated with the GFC, and, courtesy of their size and clout, seen off the competition that was supposed to result from deregulation in the 1980s, while trimming their costs along the way.

High profits, excessive profits or just plain profit maximisation?

Research conducted by David Richardson for The Australia Institute and published as Policy Brief No. 10, ‘A licence to print money: bank profits in Australia’ underscores both the dominant position that the four major banks have in the Australian financial sector and the increasing levels of their profits over time.

Historical performance of the big four—profit before tax 1986 1989 1999 2006 2009 ANZ ($m) 357 773 2,162 5,214 4,380 Commonwealth Bank ($m) 396 813 2,498 5,704 5,975 National ($m) 484 1,110 4,141 7,275 6,962 Westpac ($m) 540 926 2,026 4,547 6,096 Total ($m) 1,777 3,622 10,827 22,740 23,413 Per cent GDP 0.7 1.0 1.8 2.3 1.9

Comparing the 2010-2011 profit figures with the above table highlights the trend for increasing bank profits.

Richardson argues that the four major Australian banks have made excessive profits. Apologists for the banks have countered this by asking just what constitutes excessive. It should not be forgotten that the banks and their apologists will always find a rationale for their behaviour. What drives banks and other financial institutions and all other companies for that matter is profit maximisation. To get bogged down in the semantics over profits, high profits and excessive profits overlooks or downplays this essential feature of capitalism.

The big four are also affected by the continuing international crisis of finance capital, and in the Eurozone in particular. Opening up Australian financial markets to overseas banks began with deregulation of the finance sector from 1979-84, and to ensure the free flow of speculative capital from the world’s wealthiest persons and institutions, the government’s responsibility for the supply of money and of interest rates has been taken away.

The Reserve Bank is independent of government control and the private banks now act independently of Reserve Bank decisions on official interest rates. This is what is behind the comments of bank CEO’s like Westpac’s Gail Kelly when they talk about the impact of international financial markets on Australian banks borrowing costs - the local banks are mere conduits for international banks to squeeze Australian workers and businesses. They try to justify their obscene profits because of the demands of international finance capital for higher returns on their loans to Australian banks.  

The big four Australian banks, increasingly dependent on big foreign financial institutions, are driven by profit maximisation.This drive benefits the few at the expense of the many.

Put banks at the service of the working people, farmers and small-business people of Australia. Australia cannot exercise financial independence under capitalism.

Nationalise the banks!