Bank on guv’ment!

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The AFR has a nice banking panegyric today timed for the G20:

The big four banks are among the most highly rated financial institutions in the world; superannuation assets, which have grown to $1.7 trillion, represent the world’s third-largest pool of investable assets; the Australian interest rate derivatives market is the world’s fourth-largest and the largest in Asia; and the equity market, with a cap­italisation of $1.5 trillion, is the eighth-largest in the world by free float.

…John Brogden, chief executive of the Financial Services Council, says: “Our fund managers and super funds are globally recognised for their expertise in pioneering infrastructure investment and are world-class managers of equities, cash, property, fixed income and alternative asset classes.”

So why is such expertise not attracting much interest from foreign investors?

Just 1 per cent of Australia’s financial services are exported, according to Industry Super Australia. While 60 per cent of the assets managed in Hong Kong belong to foreign investors, only 5 per cent of Australia’s pool of funds under management is sourced from offshore, the FSC says.

David Murray’s financial system inquiry will be asked to explain this conundrum…

Conundrum…riiiight…

Consider, for a moment, the irony of this article. John Brogden, a failed politician turned finance lobbyist, wants the guv’ment to improve Australian finance exports. He wants a guv’ment inquiry into why the local system is terrestrially bound, headed by an ex-banker who was a key architect of the very system that has proved unable to export, and has been working for guv’ment ever since. Brogden’s mates in guv’ment will deliver said inquiry while his mates in financial media cheer along as our guv’ment meets other guv’ments at a guv’ment talk shop.

Of course Brogden is quite right to turn to guv’ment for support because in reality it is the guv’ment that manages the bank’s risks via various guv’ment guarantees (at least we hope it does!). If a guv’ment is managing a bank’s risk then, you might well ask, what is the bank spending its time doing?

I hate to break it to Mr Brogden but he is the reason Australian financial services can’t export. The system he represents  is a quango; a self-perpetuating public/private partnership specialising in a unique form of crony capitalism that has no competitive advantage beyond its own closed loop.

This is true of banks mired in local property-backed assets whose only real edge is a hot line to the Prime Minister and his pretty Budget. It is true of the wealth management sector and its obsession with local equities, juiced by favourable tax laws.  It’s not quite so true of insurance where we have filled some global niches.  It was a fading truth for a shining moment in investment banking before the “Macquarie model” for infrastructure investment was exposed as…ahem…pro-cyclical.

The system’s semi-occasional wail for wider acknowledgement is the bawling of the over-suckled babe as he compulsively seeks approval in an indifferent wider world.

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Comments

  1. The reason we can’t export financial services is the Australian system is a quango; a self-perpetuating public/private partnership specialising in a unique form of crony capitalism that has no competitive advantage beyond its own closed loop.

    Riiiight! 🙂

  2. The inquiry will recommend Government assistance to expand financial sector exports and the Government will oblige. No doubt tax payers will end up subsidising financial sector spruikfests throughout the world and possibly even extending cheap finance to help our financial services sector expand overseas. Fun times.

    • We already have a favourable tax regime for banks – the ‘offshore banking unit’ regime which gives foreign branches of Australian banks concessional tax treatment (income from OBUs is taxed at an effective rate of 10%). This regime has been available to banks since the early 90s.

  3. QUANGO stands for Quasi Non-Governmental Organisarion…

    It’s a type of hybrid organisation which became popular as part of the New Public Management movement in the 90’s.

  4. Of course we did have a company that was doing extremely well in Asia…and we allowed the AXA Asian business to be sold back to the French.

    I was in the middle of this and I can tell you that AXA France was desperate to get the business and couldn’t believe their luck when the sale was approved.

    Gotti was all over the tragedy of this back in the days when he used to make sense. Seems most of the articles are behind the paywall now, but here’s a Crikey piece.

    http://www.crikey.com.au/2011/03/03/penn-a-huge-winner-in-axa-asia-pacific-takeover/

    However, all is not what it seems. This has been revealed by Business Spectator’s Robert Gottliebsen, who has produced some fantastic coverage of the AXA acquisition. Gottie seems to have been briefed by hedge funds or other insiders with an intimate knowledge of AXA AP’s affairs and described the takeover of AXA AP as “one of the saddest days in Australian finance history” — he probably isn’t too far off.

    • Gotti was lucid for a while on that one. He was also spruiking hard to all & sundry about the Aussie regional financial hub that would rival London & eclipse Singapore & HK – Regardless of our relative remoteness.

      It’s something they’ve been stroking on about for a long time & still looks like a hubristic shot in their teenage wet dreams.

      Enter the new timely ‘strategy’ above – a renewed salvo with ‘daddy’ holding their hands…….. Will the world really notice the spoiled brat stamping their foot?

      We’re still seen as a quarry where they dig out their dirt for their profit. Our FX is just a speccie in their back pocket – a plaything!

      Apart from bleeding us dry with usury we readily demand, & our dirt, the only reason I can think of why they tolerate us is our geostrategic position that might suit Them one day.

      • still looks like a hubristic shot in their teenage wet dreams.

        That’s turned me off lunch!! And I was so looking forward to a nice cut of Salmon 🙂

        EDIT: AUD is bouncing around like a yoyo, glad I got outta that trade

      • “Gotti was lucid for a while on that one. He was also spruiking hard to all & sundry about the Aussie regional financial hub that would rival London & eclipse Singapore & HK – Regardless of our relative remoteness.”

        Yep. Allowing AXA AP to be split up and sold off was a massive mistake, but the idea of Australia becoming a financial services hub is one that’s been around forever and is just as ridiculous now as it’s always been.

      • Sorry Mig,
        Not intending to repulse, but then again I find this cancer’s perversion of the system entirely repulsive.

  5. My sentiments exactly. Hubristic people trumpeting Aus banks as world-class need to ask why they have achieved zero of any substance outside Aus.

    The financial world knows theyre just a leveraged local property play and is waiting for the day the edifice crumbles.

    Hopefully when it does it doesnt take the entire country with it.

    As a side note it irks me immensely how difficult it can be to get your Super to invest outside of Aus… can be done, but you need to be quite determined.