The Motley Fool

Big banks were ‘sorry’, but not much has changed

So I know the Banking Royal Commission is yesterday’s fish and chip wrapper by now.

The banks apologised at the time (well, except for the NAB, and Commissioner Hayne has two business scalps as trophies), and promised they’d do better. It was a wonderful exercise in prostrating themselves in front of both the Commission and the media.

And we swallowed it, whole.

Well, most of us. I’ve been saying ever since that I felt NAB Chair Ken Henry and CEO Andrew Thorburn paid the price for being too honest (and for either being badly advised by their lawyers and PR flacks, or for ignoring that advice). The other CEOs who — I’m sure, honestly — were contrite lived to tell the tale.

But their promises of changing? Of turning over a new leaf?

(Okay, I’ll wait until you stop laughing.)

Actually, feel free to keep laughing. Just yesterday, ASIC joined in, too. Except it wasn’t laughing.

Indeed, as the Sydney Morning Herald reported:

“…[t[he regulator said on Monday that most of the institutions involved were yet to complete further reviews beyond the failures identified in 2013…”

But those apologies!

Those promises to do better!

The whole ‘new leaf’ thing!

Hands up who’s really honestly, surprised.



I didn’t think so.

I still don’t exactly feel sorry for the NAB head honchos who were forced to walk the plank, but the double standard is clear for all to see — and a victory of appearance over substance.

In what was some more awful timing, NAB’s interim CEO, Phil Chronican, today released a letter apologising, and promising to do better… the day after ASIC lambasted the banks for poor efforts to actually do better.


Meanwhile, of course, the banks are still making out like bandits, charging people interest rates that are probably a good 0.25% – 0.5% more than they should be paying.

If you have a good deposit and a decent amount of equity, you can get rates as low as 3.59% on your mortgage.

And yet some — many — people are still paying four-point-something on their loans.

Now, I don’t expect the banks to run charities, and they’re entitled to charge as much as they can get away with… but why are you letting them?

I’m sorry if that sounds harsh, but you’re literally donating tens of thousands of dollars to your banks, over the life of your loan, if you’re not paying the lowest rate possible.

If you don’t like money, that’s okay. But surely you can find a better cause to donate to?

As for investing in the banks — I don’t think that’s a good use of your cash, either.

House prices are falling.

People aren’t borrowing.

Banks can no longer grow via acquisition.

That doesn’t mean bank share prices can’t go up, of course. Anything’s possible.

But is it really likely? I don’t think so.

Now, there’s more than one way to skin the investment cat. But one approach I favour — particularly for long-term, buy-to-hold investments, is to start with a simple question:

“Is this company becoming more relevant to more people over time?”

It’s far from the only question — if it was that simple, everyone would do it — but it’s a good start.

Because, it’s hard to pay a low enough price for a company in decline.

And a company that’s neither growing nor declining doesn’t leave you much room for error, either.

Growth isn’t a panacea. Many a company with big dreams and impressive growth has come a cropper.

As a starting point, though, it’s a pretty good one.

While everyone was writing Flight Centre’s corporate epitaph, it spent a couple of decades writing an increasing number of tickets for an increasing number of people.

CSL continues to provide a growing number of treatments for a growing number of patients.

Cochlear is helping an ever-larger number of people hear — and providing them with an increasing number of services (including hardware and software upgrades).

Growing sales means you’re finding new markets. Creating new products. Winning new customers.

Yes, you have to do it profitably. And that profit should be growing. You don’t want the shares to be overpriced, either.

But starting with growth can be a very valuable first step.

Fool on!

Scott Phillips
Chief Investment Officer
Motley Fool Australia

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.