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Test the banks

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by Peter Switzer

The banks copped a bagging in the Fairfax press and the charge is gouging which has delivered billions. But rather than complaining, maybe you can come up with a strategy that could turn this into a bottom line advantage.

The allegation is that the big banks which have been crying poor because they are borrowing both overseas and locally at higher rates of interest and have raised interest rates over and above the Reserve Bank’s increases, now have recorded a first-half combined pre-tax profit of $14 billion.

Bigger market share

This is a better number than any pre-GFC figure and raises question marks over whether the banks really had to raise interest rates as much as they did.

On pure borrowing terms, they’re now paying more for money — that is absolutely true, but they have picked up a lot more business as non-bank lenders have nearly disappeared and small banks have lost market share to the big banks.

This has helped the banks’ bottom lines.

So they have lost from the higher borrowing costs but have gained via the bigger market shares.

Competition on the way

Well, what do we do?

It is always wise to test your bank out and don’t be afraid to shift for a better deal, better service and lower costs.

These guys have about two years before credit markets really get better and that’s when more competition will re-emerge but as I always say — the best way to get even with banks is to buy their shares and they’re at good value at the moment, especially if you invest like me — for the long-term, which is five to ten years.

To the US

For the short-term investor, the US jobs report is out tonight and so that’s what will drive Wall Street when we wake in the morning and it will have a big bearing on our market on Monday.

Wall Street finishing in positive territory, though only just, means there has been a two-day rally in the States but retail sales did disappoint in May and so a great jobs number is a market necessity.

At the moment Europe remains a bugbear and my favourite overseas charts guy — Jordan Kotick from Barclays Capital — says there will be some European market challenges in coming months. So we should see some anxious moments but he does argue this looks more like a correction phase.

US Treasury Secretary Tim Geithner still believes in the US recovery and the improving global picture. Let’s hope he’s right, and if he is, my hope for a late-year rally may be a Christmas wish that comes true.

S&P/ASX 200 to hit 6000?

Next week on my program I will interview Tony Brennan form Deutsche Bank who earlier this year tipped the S&P/ASX 200 at 6000. I am keen to see if he thinks that can still happen.

Have a great weekend.

For advice you can trust, contact Switzer Financial Services.

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: Friday, June 04, 2010