The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, November 3, 2010

Chairman of Bendigo & Adelaide Bank argues for lower RoEs

My friend Robert Johanson, the Chairman of Bendigo & Adelaide Bank, today made what must rank among the most extraordinary remarks from a private banker in contemporary history, arguing in favour of lower bank returns on equity (RoEs) given the banking system’s post-GFC status as a “privileged, government guaranteed utility”. As reported by AAP this afternoon:

“Mr Johanson told shareholders an inquiry into the financial system was needed to address Australian banks' reliance on offshore funding.

He said it was also necessary to work out whether incentives were needed to encourage the $1.5 trillion in superannuation savings to flow into domestic interest bearing securities that could help fund the local banks and reduce Australia's structural savings deficit.

Mr Johanson also weighed into the political debate over banks' profits, saying new rules over capital and liquidity set by global regulation authorities meant banks would be a lower risk business in the future.

"So investors should accept lower returns," he said.

Return on equity (ROE) was a measure of profitability and the Australian banks delivered ROE of 20 per cent or more prior to the global financial crisis, he said.

A return to that level was still anticipated by bank analysts, but historically such returns were "unusually high and beyond what one would expect of a privileged, government guaranteed utility", Mr Johanson said”