This will really make you laughing in tears. A magnificent corporate bungle that really humiliate this big old bank, one of the finest in Australia (and the world). There was a big news and furor happening when it was launched in Australia on 2nd week of December 2009. People laugh but angry about it, but no one can really do anything about it except condemn it. Maybe a bit of excellent example of corporate greed? Who knows this is an intentional publicity stunt engineered by the clever people at Westpac !

Australian Economics At a Glance

For you to fully enjoy the laugh and tears of this bungle, let me describe the exact background and understanding related to the state of Australian economics. Just bear with me in this 3 paragraphs and you have more laugh!

Like it or not, the world just got trough the biggest financial crisis in the history (thanks mostly to US banks!). And to my surprise, Australia is one of the few countries in the world that did not go into recession, technically. (The definition of recession requires 2 consecutive quarterly negative economics growth of economics, it didn’t happen – yes, some slow down happened but no recession). Why? Well beside the abundance of treasure in the ground, we need to admit that the excellent and strong shape of Australian Banking is one of the reason we got thru the hard time with less pain.

Australia is dominated by only 4 big banks, namely: Commonwealth Bank, Westpac Bank, National Australia Bank and ANZ Bank (Australia and New Zealand Banking Group) dubbed as “the big four bank”. This is the situation of Australian Big Four Banks:

BankProfit 2008-2009(*)StatusProfit 2007-2008(*)Mortgage Market Share
Commonwealth Bank$4.72billionDown 1 % from previous year$4.8billion28.9%
Westpac Bank$3.4billionDown 10.7% from previous year$3.8billion26.6%
National Bank$3.9billionDown 10.7% from previous year$4.3billion14.4%
ANZ Bank$2.9billionDown 11% from previous year$3.3 billion14.1%

(*)All are 12 months to September, except CBA which is ended in June<

Then afraid of high inflation instead of recession, the Reserve Bank of Australia become the first and the only reserve bank in the world to increase the cash rate 3 times for the last 3 months after record low of 3.0% since April 2009. Each by 0.25%. This is where all this saga starts…..

Westpac Bank and banana Smoothie

Westpac Bank and Banana Smoothie

The WestPac Saga

Tuesday, 1 December 2009 14:30, Reserved bank announce that they will hike interest rate by 25 basis point. That’s 0.25 increase from 3.50% to 3.75%. This practically means, if you have a mortgage of $300,000, you will pay additional $62.5 per month.

And this is the sequence of events:

  1. Only less than 2 hours later, Westpac announced that they increase their interest rate by 45 basis point, almost double than what RBA did. This practically means, if you have a mortgage of $300,000, you will pay additional $112.5 per month. In Australia, bank is not required to follow the reserve bank as the competition is expected to self adjust the action. (The problem is hardly any competition so far)
  2. Immediately condemnation from politician, economist, customer and community all around the country. Federal treasures Way Swan comment “I see no justification at all for this move by Westpac”. He also added that the excessive rise is a “slap in the face” for consumers. He warned the bank to brace itself for a possible “customer backlash”
  3. National Australia Bank (NAB) deliver an uppercut to Westpac, they decided to raise on 25 basis point. The other 2 big four “play save” with ANZ increase 35 basis points and CBA increase 37 basis points. With its standard mortgage rate is no 0.27% cheaper, NAB take he competition to another level. Even they have “mobile branch” that camp outside Westpac prominent Sydney branch with its staff wear “It’s time for a change?” t-shirt.
  4. Monday 7 Dec: Westpac said “We’re not the JetStar of banking.’’ (I guess this should be a compliment to JetStar, one of the leading low cost airline in Australia) – So, basically Westpac said: “No, our products are not cheap”. Also  Westpac chief executive Gail Kelly added ‘‘We’ve been holding back from passing on additional costs,’’ she said.

The Banana

Then Westpac send a video clip to explain themselves to customers which turn out to be public relation nightmare. Here is the banana:

Basically what the video said: since it’s okay for the banana smoothies seller to increase the price without any fuss when banana disappear because of storm, why people is really fussy about us (Westpac) increasing the mortgage rate when the supply of money disappear

Westpac again need to defend themselves –  after the video become viral and disastrous – that the video is actually not for customer, it’s only for internal training for staff. (Probably this is quite an insult for the staff, then)

About the video itself, it’s actually quite good for explaining the basic economy and banking. I am quite surprise that Westpac with the old and conventional style could embrace this very Web 2.0 element.

Your Laugh & Tears

  • Hey, the video is great to teach my 7 years old about basic trading, money and banking !
  • It’s classic corporate greed at its finest. Like 5 years old caught red handed with hand still in the cookie jar and trying to explain themselves with stutter.
  • They forget that they just made another $3 billion after another $3bilion last year…
  • This really remind me of the great clips explaining about credit crisis. Pretty sure Westpac get the idea from them.
  • Wish can switch to other bank easier… (The cost to exit current contract, and switch to another bank is quite expensive and too much paperwork – it’s still usually cheaper take a deep breath , sigh, and just pay the higher interest)
  • Doesn’t matter 45 basis point or 25 basis point, it is still INCREASE !! (And other bank does not really take the heat)

Message to WestPac

  • There should be other banana smoothie seller out there. Don’t think you are the only one with banana…
  • Last November you still gave dividend 60c per share, even beat the market expectation by 4 cents. Hence, there is no sign of cash flow problem, isn’t ?
  • Don’t be overly comfortable about the lack of competition. If NAB with smaller cash and customer can do it, why can’t you ?
  • Understand that you work to please your shareholder, but angry customer will be much more important than any shareholder…. Just see
  • Agree with Wayne Swan: “There is no justification” – just greed.

Don’t get me wrong, I support capitalism where competition and open market rules everything. But where the competition is lacking (Thanks to NAB to start one, let see how it goes), there is no other choice than government to wet its feet: regulates this sector.

After all, an affordable mortgage is to underpin things as basic as a home, people’s most basic things in life as remarked Prime Minister Kevin Rudd when criticized Westpac