ANZ chief executive Shayne Elliott. Picture: Adam Yip
ANZ chief executive Shayne Elliott. Picture: Adam Yip

ANZ shows big four are alive and well

The ANZ result shows that the four big banks are in rude good health after their most traumatic year arguably since the Paul Keating-Reserve Bank recession of 1991.

I'm glad and so should you be. "We" tried hard through the royal commission to seriously hurt them; it appears "we" failed.

I'd assert that the past 12 months, going on two years, was even more traumatic for the banks than the Global Financial Crisis - which for our banks, very differently to those of Europe and the US, was essentially and then only a very temporary liquidity crisis.

But over the past year they've been hit by at least four big and aggregating shocks.

It was not only the RC, although that was big. That was both the actual RC itself and then its aftermath - forcing the banks to quit wealth and financial advice, the remediation costs and imposing big new operating costs.

ANZ chief executive Shayne Elliott. Picture: Adam Yip
ANZ chief executive Shayne Elliott. Picture: Adam Yip

They also got hit by the collapse in their core and most profitable business - property lending and especially lending to investors and speculators.

Then add the generally soggy state of the overall economy and the slashing of interest rates to never-before-seen levels.

Each of those four on its own could have hit margins and profits. Together they could have been devastating.

Yet the ANZ has come through it with an essentially unchanged profit and a return on equity still - albeit, just - in double digits.

Ask yourself, as you contemplate getting, say, 1.5 per cent tops on a bank term deposit, whether you think bank shareholders are doing it tough getting a return of "only" 10.9 per cent on their equity.

I have to say most of the commentary in reaction to the profit on Thursday sat somewhere between utterly stupid and profoundly ignorant.

Reserve Bank of Australia governor Philip Lowe. Picture: AAP
Reserve Bank of Australia governor Philip Lowe. Picture: AAP

In essence it was, gee, the ANZ profit didn't go up, what happened to the unicorns?

During the week RBA governor Philip Lowe made the critical point that in this era of seemingly sustained near-zero rates - the cost of money and capital - businesses should aim for lower returns than in the past.

The same goes for the banks. But because their solvency and even more the absolute confidence of both businesses and consumers and savers in both their individual and the system solvency is so utterly critical, the ANZ-level return - just in double digits - looks exactly right.


I would hope the other two September balancers, NAB and Westpac, will confirm the broad structure and dynamics of this "new normal" - appropriately adjusted for their greater exposure to the RC aftermath.

The one concern I would have is that once again the ANZ profit has been supported by such extraordinarily low bad debt levels - despite those property and economy negatives. Clearly, lower loan rates have been absolutely important.

More broadly, the banks - like all the rest of us - are ultimately hostage to what happens in the global economy and world financial markets.