ANZ Bank CEO Mike Smith and His Analysis of the Australian Economy

ANZ Bank CEO Mike Smith is apparently quite popular with local analysts and the press.

They like his straight-talking tell-it-like-it-is analysis of the Australian economy.

And just as importantly, they like his deadpan humour. He can, we are told, belt out a joke keeping the straightest of straight faces.

So we’re sure the following comment he made in a speech to the Australia-Israel Chamber of Commerce brought the house down:

“The Australian dollar is going to get stronger and it’s going to be tough on the economy. I don’t think enough people do worry about it – and putting interest rates up will exacerbate it. I do think we have to be careful about that. It may well be that the next bubble is in the commodity market.”

Hahahaha…. Oh, Mike, you’re serious. I didn’t realize. Oh dear!

Let’s see if we’ve got this right.

The CEO of one of Australia’s quadopoly of banks is concerned about rising interest rates…. because it could lead to a bubble in the commodity market.

So he’s not worried about rising interest rates sending mortgage borrowers broke, he’s worried about the commodities market.

But do we really need to take advice from a glorified bank manager on whether there’s a bubble in the commodities markets?

Why would he care anyway? According to recent numbers from the RBA on bank lending to businesses, total outstanding loans to the mining industry at the end of the March quarter of this year accounted for only 2% of bank business lending.

In dollar terms it was just $14 billion. Compare that to housing loans of, wait for it….

$810.1 billion.

In other words, lending to home buyers is almost 60 times greater than lending to mining companies.

And Mike Smith is worried about a bubble in the commodities market. Do us a favour.

We wonder if he’s even considered the possibility of a bubble in the housing market.

He probably has. The major difference is there’s more money to be made from a housing bubble – and therefore lost too – than there is from a commodity bubble.

But a scan through Mike Smith’s speech reveals more gems. Although I should point out the following comments aren’t the first time he’s mentioned it. He’s something of a repeat offender by now – a recidivist if you like.

“Today, we have unfortunately entered a new period of government intervention around the world through re-regulation and creeping protectionism.”

Hold up Smithy, haven’t you been bashing down the door of Chez Rudd to get the government involved? Hasn’t Smith been one of the cheerleaders for government intervention to ‘fix’ the financial markets?

And as for “creeping protectionism”, can we include protection of the four major banks?

Look, we wrote at the time of the bail-outs that it wouldn’t take long for CEOs to lament the involvement of government, but only after they’d cleared out the contents of the taxpayer’s wallet.

Not that the Australia banks have been bailed out of course:

“First, our banking system has remained strong with the four major Australian banks now among just 11 AA-rated banks left in the world. The result is there’s been no need for government bailouts and not one cent of taxpayer money has been expended in supporting banks.”

Does the man have no shame? The bloke is an embarrassment to himself.

After getting the government to put the taxpayer on the hook for trillions of dollars he can’t even be bothered to acknowledge that without taxpayer support, every single one of Australia’s banks would have gone bust.

Not even a little thank you Mr. Smith?

Of course not. It seems it was the strong and fiscally responsible management of the banks that got Australia through the mess. Not the wholesale and retail guarantees, and not the first home-buyers boost, and not the slashing of interest rates to abnormally low levels.

None of those things could have prevented the banks from collapsing surely.

Is it possible that Mike Smith is the most arrogant CEO in Australia. Here at Money Morning we think it is possible. In fact, we’ll say he is the most arrogant CEO in Australia.

On top of that, a CEO who continues to peddle the nonsense about the strength of Australia’s banking system.

A banking system so strong that according to The Sunday Telegraph:

“More than 55,000 Australian families have been given mortgage-payment holidays and hardship concessions by major banks.”

To be honest, this news item slipped under your editor’s radar. We think we were too absorbed with spruiker-bashing.

Anyway, it was Money Morning reader Dave that brought it to our attention.

But even the 55,000 figure is an understatement because the article states:

“Commonwealth Bank – the country’s biggest home-loan provider – refused to disclose whether it was assisting struggling customers.”

Which is all a bit strange really. Only a couple of weeks ago, Commonwealth Bank CEO Ralph Norris highlighted how great it was that his bank had such a large exposure to the residential mortgage market.

It was this large exposure – much larger than the other three banks – that meant CBA was a less risky bet.

You’d think they’d be proud of the number of mortgage-payment holidays they’ve arranged. I mean, by Norris’s implied theory, CBAs larger residential mortgage exposure would mean less risk and therefore less mortgage-payment holidays.

Well, you and I both know that’s rubbish. We wrote at the time that CBAs mortgage exposure was bad news for the bank.

But CBA don’t want to let the cat out of the bag because they are doubtless up to their elbows in sub-prime style home loans.

Considering Commonwealth Bank is the largest home loan provider, we can probably add at least another 25,000 to the number quoted above. But it’s probably even more than that.

That would mean over 80,000 borrowers on a payment holiday.

And as you can guess, a mortgage-payment holiday doesn’t involve a nice bus ride to the beach with your bucket and spade.

We’re talking people who can’t afford to pay their mortgage. We’re talking people that are getting further and further into debt while they are on the ‘holiday’ as the unpaid mortgage and accrued interest just gets added onto the loan.

Just like any debt, it’s got to be paid back.

What a joke Mike Smith is for claiming the Australian banking system is one of the strongest in the world.

Just to rub it in, he said this in his speech:

“Lending – which is the life blood of the economy – has been maintained, and that’s allowed the government to use its resources on other measures to stimulate the economy.”

Got that, “Lending…. is the life blood of the economy.”

No it isn’t. It’s the life blood of a ponzi-style fractional reserve banking system that is pumping itself up towards collapse. But it’s keeping the banks in business – for now.

For all the property spruikers that have sent emails to the Money Morning website and who have posted notes to the message board, they may want to reconsider their bravado.

At least 80,000 borrowers on mortgage-payment holidays is not a drop in the ocean, it’s a potential tsunami. And add in the poor saps who are withdrawing ‘equity’ in their home just to make their mortgage repayments and you’re probably doubling that number again.

Maybe the property cheer squad will be able to pick up a few bargains when the market collapses.

But based on the desperation in some of the comments we’ve seen, the odds are they themselves are so leveraged to the teeth on ‘ever rising’ property valuations they’ll need to grab some of those mortgage-payment holiday brochures too.

Other Stuff on the Markets

The S&P/ASX200 eased 0.19% yesterday, while overnight on Wall Street the Dow Jones Industrial Average added 63 points. In Europe the FTSE100 dropped 0.43% and the CAC40 slipped 0.55%.

The price of gold in Australian dollars is trading at $1,184.62, while in US Dollars it is trading at $994.55.

The Aussie dollar remained steady versus the US dollar and Japanese Yen, trading at USD$0.8394, and JPY77.73.

Crude oil closed overnight at USD$68.13.

For the biggest movers on the market yesterday click here…