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Welcome to Firstlinks Edition 328

  •   16 October 2019
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Chief executives of banks usually give their pricing committees free rein to adjust fees, deposit and loan rates, as there are hundreds of prices regularly changing. But there is one rate which must always be cleared by the boss: the variable home loan rate. This demand goes back at least 30 years, because the managing directors know the Federal Treasurer of the day will hit the phone and the airwaves to complain if banks do not pass on a full cash rate cut.

And so it was with Josh Frydenberg this week, only this time, he went a step further. In this Media Release, he directed the Australian Competition and Consumer Commission (ACCC) to undertake an inquiry into the pricing of residential mortgage products. Didn't he just announce a Retirement Income Review? Isn't the House of Representatives Standing Committee on Economics holding hearings in November as part of its ongoing review of the banks? Didn't the Productivity Commission already issue an Inquiry Report in 2018 into mortgage pricing? And not to forget the granddaddy of them all, the Financial Services Royal Commission. No wonder the banks are calling it 'inquiry fatigue'.

Then the Prime Minister's Office accidentally distributed the talking points provided to Coalition MPs, which told them what to say about the ACCC Inquiry in the last two dot points below. It excuses the Financial Services Royal Commission from not examining the pricing issue because it "focused on misconduct". So relax, bankers, your pricing behaviour is not misconduct.

ACCC Chairman Rod Sims will need to issue a dictionary. On 14 March 2002, almost 18 years ago, I did a segment on ABC Radio National called 'A Banker's Dictionary' where I described some of the words used in bank pricing committees. Many of these are now politically incorrect, but there are new ones. Mr Sims will learn about the difference between the back book and the front book, loyalty taxes, maturity transformation and (standing the test of time) retail inertia.

The ACCC will learn that banks do not fund much of their book at the cash rate, and deposit rates have also not reduced by the amount of the cash rate fall. Banks are attempting to maintain margins by clawing a few points from variable mortgage rates.


Source: Reserve Bank Chart Pack, October 2019

This week's investing articles ...

Where do investors find income these days? Shane Oliver updates his five charts on investing for income and cash flow, showing the tradeoff between adequate income and taking more risk.

Charles Dalziell asks a legitimate question for every investor: in the rush for safety, are government bonds, bond proxies and highly-sought blue chips really defensive at these prices?

There is a commonly-held view that money held in superannuation is protected from the claims of creditors under bankruptcy. Julie Steed tests the boundaries of this statement.

Hayden Briscoe believes a seismic event is unfolding which markets do not fully appreciate as investors adjust their portfolios when more Chinese securities are included in global indexes. It's a shift unlike any seen in decades recognising the rise of Chinese economic power.


This week's Sponsor White Paper from AMP Capital is called 'Women, parental leave and financial stress'. Financial wellness research finds 24% of working women feel financially stressed versus only 14% of working men.

The BetaShares ETF Review for September 2019 shows total Australian ETFs now exceed $55 billion following a strong $2 billion growth over the month.

Our own news story: Cuffelinks acquired by Morningstar

We are excited to advise that Cuffelinks, now branded as Firstlinks, has been acquired by Morningstar. My assistant, Leisa, and I will join the Morningstar team and continue to bring Firstlinks to you for free, but with the resources of a global publisher and researcher whose values closely align with our own. We also look forward to bringing new services to you.

See Chris Cuffe's letter on the journey since 2012; Managing Director of Morningstar Australasia, Jamie Wickham on why his company bought the business; and I reflect on the support received from writers, sponsors and readers as we move onwards and upwards with a new owner.

 

Graham Hand, Managing Editor

For a PDF version of this week’s newsletter articles, click here.

 

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