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How not to defend an big increase in mortgage rates: talk about banana smoothies
December 9th, 2009By Bernard Hickey
Westpac has sent customers in Australia a video using the analogy of banana smoothie prices going up after a storm to justify a big increase in its variable mortgage rate. This has sparked outrage across the ditch, as much for the ham-fisted and patronising delivery as the mortgage rate increase itself. Check out the video below to understand the bone-headedness of the idea.
Essentially Westpac is saying that just like banana smoothie makers passing on higher banana prices, Westpac has increased its price for mortgages because of the storm in financial markets last year. The reaction to this video sent via email to customers was brutal.
Prime Kevin Rudd said Westpac needed to have a long hard look at itself and customers should consider banking elsewhere. Marketing experts and consumer rights advocates were similarly grumpy.
Watch the video in the playlist below or here.
”This long-winded parable of Westpac being like a banana seller in a storm on a tropical island somewhat beggars belief,” said Stephen Pearson, head of the ad agency Lowe Worldwide.
”The style and tone is quite child-like, and for any educated person [it is] likely to be seen as condescending.”
Richard Foster, head of the Financial and Consumer Rights Council, also criticised it, coming as it did off the back of comments yesterday by the Westpac chief banana, Gail Kelly, that customers would not be hurt by the rise.
”When a mortgage holder is experiencing stress and housing affordability, I don’t think they are going to be overly impressed that Westpac says it is helping them by putting up rates.”
So why has this struck such a chord in Australia and what does it mean for homeowners in New Zealand.
The real pain is in the size of Westpac’s increase in its variable mortgage rate last week that preceded the explanatory email. Westpac lifted its ‘Rocket Repay’ variable mortgage rate by 45 basis points to 6.76% just one hour after the Reserve Bank of Australia increased its cash rate by 25 basis points to 3.75%.
The problem for Westpac is that the other big three banks lifted their variable rates by less. CBA, which owns ASB here, raised its variable rate by 37 basis points to 6.61%, while ANZ raised its rate by 35 basis points to 6.66% and NAB increased its rate by 25 basis points to 6.49%.
Here are all the Australian mortgage rates on our sister site interestratenews.com.au.
Australians are grumpy that the banks have passed on the OCR with interest (except for NAB) and they have reason to be grumpy.
The banks are arguing their funding costs are up, but this has less validity for this mortgage lending funded at very short terms. Here’s an excellent article from Interestratenews.com.au arguing that Westpac’s margins in Australia have actually fallen this year.
Westpac is actually trying to rebuild its profits after a big hit from bad loans in the last year. There’s a genuine argument to be had about the balance to be struck between profits and prices.
Westpac is essentially saying in its video that it needs to protect its profits and therefore its future by putting up prices.
It should stop trying to argue this and simply accept that it’s in a competitive market and will need to find savings elsewhere.
The New Zealand impact
Meanwhile, more New Zealanders are opting for variable mortgage rates, breaking a fixed mortgage habit of a life time. That means when our Reserve Bank starts putting up rates late next year we may find the same debates put forward by the banks.
We’ll see.
I’ve got a feeling Westpac won’t be talking about banana smoothies again.
Tags: Banana smoothie video, Cool bananas, fixed mortgage rates, Gail Kelly, Kevin Rudd, Westpac
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December 9th, 2009 at 4:32 pm
So glad the videos have returned into the article. Hardly ever watched them when you had to go to another page to view them.
December 9th, 2009 at 4:44 pm
I thought that westpac ad was pretty good, apart from the banana smoothie thing, and it explained things to the financial novices. Perhaps it was a little patronizing in it’s tone. Noticed that they said that they want to make sure that they can ‘Weather any storm’. Sounds similar to the motto of a well known finance company in NZ that failed.
December 9th, 2009 at 5:19 pm
About 3 weeks ago I found on Bloomberg a story about Westpac planning to issue bonds to the tune of around 25 Billion (!!!!), supposedly to meet liabilities becoming due in the first 3 months of 2010. I was stunned and then quite worried, the article disappeared after about 5 hours on the Bloomberg site. If Westpac needs this amount of money, this is mind boggling, compare the amount to approx. the same money need of Dubai, which caused shockwaves around the globe.
Back then I did send the link re. the information at Bloomberg to Bernard, but it was obviously not interesting enough to follow up.
What is the real situation at Westpac? Has anybody more information?
To read and study a banks financial statements does make a layperson (I am not an accountant or economist) not any wiser, because the balance sheets are so confusing.
December 9th, 2009 at 6:55 pm
They need a 3-D version where a hand reaches out and pats you on the head.
December 9th, 2009 at 7:54 pm
http://wotnews.com.au/like/australian_westpac_sells_usd3bn_bonds/4347192/
Here comes some ….
December 9th, 2009 at 7:57 pm
Westpac has A$24.5 billion of debt maturing in 2010.
ouch
http://www.bloomberg.sg/apps/news?pid=20602012&sid=apmxpaf.H6Ps
December 9th, 2009 at 8:19 pm
Funny how the Westpac would have to pay more to borrow from themselves, reminds me a little of why the IRD, as a gesture to head off a loss of public confidence, finally stepped in to address the rort that saw one Australian based Westpac entity electronically transfering credit to a NZ Westpac entity, then claiming it be a loan, then claiming the interest off their taxes in NZ.
This is all right on the nose when the private central bankers are majority stakeholders of Westpac at every level in every nation. Just as 80% of the entire worlds stockmarket has proven to be owned via the same 10% of owners, mainly private central banker subsidiaries, via party related different name entities:
http://www.gwb.com.au/gwb/news/banking/wpac97.html
http://www.finsec.org.nz/flash/flash_0805/following_the_money.aspx
http://www.insidescience.org/research/study_says_world_s_stocks_controlled_by_select_few
That Westpac add is an arrogant snipe, the banking network, international and domestic, is majority stakeholder owned at every level, when it suits them, by the private central bankers.
Wake up Sheoples, you are being herded and harvested.
December 9th, 2009 at 8:40 pm
LOL….what a PR disaster….what bright spark thought they could do it and send a dumb video explaining it away….
Given its not the truth, its one good own goal…then of course they have to recover their bad losses, losses they gave out so its their fault, but now want to fleece back off good customers….ho ho….
Anybody with more than 1/2 a brain will move.
regards
December 9th, 2009 at 9:20 pm
The point I found interesting about Westpacs video is… they pointed out that they needed to borrow money to be able to lend it out… implying a $1 borrowed is only a $1 lent.
There was no mention made of the fact they have been BORROWING MONEY AND ACCOUNTING FOR IT AS EQUITY in their “Capital Adequacy Ratio”… and writing loans at $12 to $1, of suposed Equity [or what ever the RBA permits these days]…
Westpac is a castle bulit of sand … and the change of tide is about to wash it over.
I recall a news item before the [$650ish Mil tax] Judgement went against them… they were outside of the RBNZ Capital adequecy requirement…. and their response was they saw it as a “Compliance issue” and were working to correct their position…
Westpac is a Black Swan in Drag!
December 9th, 2009 at 10:08 pm
I hope they do one about how some mummy and daddy’s like to reduce their tax bill with tax structures and because they think of all of their customers as children they tried to do that too…
December 9th, 2009 at 10:36 pm
Such a reaction from rulling goverment here in NZ is unthinkable.
December 9th, 2009 at 10:39 pm
Mmmm…. I see a parody on the horozon. A truthful one …
December 9th, 2009 at 10:40 pm
rlm,
how far down the food chain do you think the users of family trusts would extend?
December 9th, 2009 at 11:13 pm
Stupid thing reminds me of those excruciable short films they used to show us back in high school . And I always fell asleep half way through , then , tooooooooozzzzzzzzzzzzzzzzzzzzzzzzzzzzz
December 9th, 2009 at 11:36 pm
any one got any history on a tim johnson—firepower ?he,s an ex kiwi–appears to have ripped off 100mil in aus
December 10th, 2009 at 12:00 am
Just had a pop around the traps : ABC / Sydney Morning Harold / Wikipedia . Timmy has form . He makes ” Arthur Daley ” of TV show Minder look straight as a die . Seems to have taken our Aussie friends several years before testing the validity of his special performance enhancing fuel pills . A claim of 42 % better fuel efficiency should’ve alerted the relevant authorities ( RAA , etc ) to check this guy out immediately . He had a grand run on their gullibilty . And was on the run , in the Philippines , when the long arm of the law snaffled him . Joy . Another shining Kiwi export . And much of the ” FE-3 ” was manufactured here too . What a patriot , our Tim .
December 10th, 2009 at 12:09 am
the feds had to arrest him to make him appear in a federal court examination.
main frame apparently sold to cash converters
December 10th, 2009 at 7:54 am
Iain – Overall I think tax planning to reduce tax is almost a way of life in NZ now. At the low end it may be simple things such as salary earners taking benefits rather than income from their employer to preserve working for family entitlements, negatively geared rental properties, further up the chain income splitting, keeping income in companies and holding ownership in trusts. Use of trusts tends to be more for asset protection in the middle class but this is only because of compliance costs & the generally limited level of understanding of tax matters
December 11th, 2009 at 7:37 pm
Here’s a video respnse to the Westpac vid.
http://www.youtube.com/watch?v=EDL6vFtj-gE
Enjoy
Alex