There’s been a phoney war in recent months about the Federal Government’s bank guarantee with the occasional Big Four CEO suggesting it needs to be scrapped. As far as the Big Four are concerned, it’s already gone.
ANZ picked up a headline by returning to the US market yesterday to raise $US3 billion ($3.3 billion). NAB was there earlier this week for $US1.75 billion. Neither required Canberra’s guarantee to raise the dosh at attractive margins, as low as 87.5 points over US Treasuries for three year notes.
But the real story is that ANZ hasn’t used the guarantee since July. It hasn’t needed to – and neither do the rest of the Big Four, the benefit of being among the very few AA rated banks left in the world and being based in a strong developed economy with a central bank and regulator that didn’t fall asleep at the wheel.
No wonder the Big Four CEOs would happily wave goodbye to the guarantee. Given that those outside their club aren’t as fortunate, scrapping the guarantee altogether could further increase their market dominance, particularly if credit markets again become volatile.
The regional and non-bank lenders tried and failed to get Canberra to guarantee assets instead of institutions. That would have put them on equal funding footing with the Big Four, but that was not attractive from the regulators’ point of view. Better to have fewer, stronger banks to watch over in difficult times. Eventual competition concerns were a matter for happier days and someone else – a luxury.
Meanwhile the institution that has made the greatest use of the guarantee, Macquarie Bank, seems to have used the taxpayers’ backing to pursue its global investment bank ambitions – the higher risk activities that pay salaries that dwarf those of “ordinary” bank CEOs.
Michael Pascoe is a BusinessDay contributing editor. Disclosure: the Pascoe family super fund holds banks shares.
