The Banks

Just to summarise what has happened with the Bank stocks

- for many years the big 4 performed very well, making big profits (much higher than their foreign counterparts), paying juicy dividends etc
- it seemed everyone was happy - shareholders, regulators, mum and dad investors able to borrow and gear up with negatively geared properties
- however, like most things that appear too good to be true, there was trouble brewing
- the Banks were under huge pressure to deliver huge profits to keep shareholders happy. What this meant was that rather than invest in state of the art computer systems, compliance etc the whole emphasis was on generating revenue. If it didn't generate revenue, the Banks didn't want it - this applied across the board - employees who spent too much time helping customers (rather than selling) were sacked, positions that didn't generate revenue (compliance etc) were made redundant, systems were neglected so that it many cases they were no longer able to do the job as the banks grew and employees were left to rely on systems designed in the 1980 & early 1990's.
- this has culminated in the issues the Banks have today. Years of under investment in systems (and compliance) has resulted in the Banks' inability to effectively monitor transactions, which has led to the money laundering problems etc and the massive regulator fines to the Banks
- thankfully the Banks are now taking a more balanced approach and investing in systems, compliance, customer service (as opposed to sales only) etc. This will lead to more sustainable industry going forward, however this will be at the expense of profitability. Note that this approach is only now possible as all the Banks (and shareholders) have realized that the previous mode of operation (focus on revenue/profit only) is simply not sustainable. All the Banks in unison are changing their business model. This was simply not practical in the past, because had one of the big 4 switched to a more sustainable model say 5 yrs ago, their shareholder returns would have fallen well below that of the other 3 big banks and they would have been ridiculed, their share price would have been smashed, senior management sacked etc.
- therefore, the massive profitability of the past will not return in the short/medium term however the banks will still be quite profitable and pay reasonable dividends
- Personally I'm looking to progressively buy into WBC at say below $16.
GLTA & DYOR