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Brussels, banks and bastards

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by Peter Switzer

The big wait is on and we should know by week’s end whether it was worth it with the banks considering their interest rate play and the EU member countries deciding their fate in Brussels.

Oh yes, there’s another big issue to be decided and that’s whether the ECB will cut interest rates overnight.

This latter question mark is bound to be answered in the positive with rates expected to be cut in both Europe and the UK. That will be good for financial markets as it will help reduce the European recession impact.

Meanwhile, stock markets are reacting positively to the news out of Europe with the Dow up 46.24 points, or 0.38 per cent, to 12,196.37. This isn’t convincing but given what Europe has served up for two years, why would you be confident about Brussels.

My gut feelings say the EU will get it right this time and the rally will continue but this is a massive call given their history.

Reluctant banks

On the local front, the big four banks are skating on thin ice with their customer relationships with their reluctance to pass on the 0.25 per cent rate cut of the RBA in full.

On the other hand, they have to think about their profits, their share price and their shareholders.

The cost of funding has increased since the Euro-crisis but that could reverse after this weekend and the end to exit fees on new loans will affect bank profitability.

Bank bashing and the “bastards” tag are poised to get a run next week if the banks don’t move to pass on the full rate cut but these actions confirm why I always say the best way to get even with banks is to buy their shares!

Pass it on!

I hope for the economy’s sake, and even for local share prices, that the banks do pass on the full rate cut as consumers and businesses are not borrowing right now and any tightwad behaviour by the banks will hurt the economy and inevitably their bottom line!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, December 08, 2011

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