I read this article last week and can only conclude that the banks’ grab for margins and replenishment of capital is also underpinning future anticipated losses while being pushed by our own regulatory authorities, especially the Federal Government.

I do not want to cover the implications for shareholders, dividends, PE’s and the like, but a moment of reflection will reveal that the banks are getting the lion’s share of business at bigger margins – (see APRA site for details), at lower commission costs, and with bigger, more frequent clawbacks and discretionary (branch or brand only) product offerings.

We all know that, if you have a difficult deal and take it to a branch, it will be approved in-house because it is rated differently or the controls on approval are fewer and lower.

We have been losing existing clients to one major bank where the client payment history put them in the ‘impaired credit’ basket. At branch level, the deal was still approved at current full doc prime facility rates. Payment history does not seem to matter much and I do not know how income could possibly be verified. The credit reports on these clients also had adverse notations.

Under the new National Consumer Credit Protection Bill 2009, how will the policing be carried out and will it again be on the basis that ADI’s get a free hand under the same rules because they are APRA regulated? Is this one set of regulations and two sets of rules?

I understand that restrictive trade practices and anti-competitive behaviour (where it comes to credit) are unenforceable, but is that meant to be in regards to the clients’ credit, or to the products, services and credit of the respective credit provider, or to the third party introducer of the credit?

A little known fact is that the model of origination actually improves credit risk by the grouping provisions of the origination deeds, and the ability of the packagers and insurers to recoup certain losses from the manager where errors or bad deeds have occurred. They simply withhold your trail commissions until the bad debt or loss has been repaid. The effect is an additional credit enhancement whereby a number of good clients support bad ones. Try doing that at bank branch level!

It seems to me that the Government is doing all it can to support the banking industry at the expense of the customer and introducer network. The Press places the entire blame on the banks for profiteering when in fact the Government has been pulling strings in the background for years.

The banks cop a hiding in the Press, while enjoying improved profits, all quietly supported by the Government in its attempt to minimise policing via regulatory control – a worrying scenario if taken to its logical conclusion.

The Government has also attempted to support the non-bank industry by investing in RBMS to the tune of $8 billion but it appears most of this money has gone to GE Money, who have left the arena. GE Money has offered incentives for existing borrowers to change lenders and kept their existing rates high to make the deal even more attractive. Genworth get to rewrite existing policies for an additional premium, bolstering their earnings and capital base at a time of claims increases.
Rumour has it that, as with many insurers, if they can wriggle out of meeting a claim they will and hence possibly activate what I was talking about earlier by claiming on managers and originators for what were, at the time, petty oversights that slipped past all concerned.

I am certainly not suggesting all the managers appointed in the past have been prudently assessed for accreditation during time of easy credit and expansionary marketing policy, but some of the good guys have been sold a pup on this issue.

MGICA returned to the market a few years ago and we all hoped that would provide a bit of balance to the near duopoly held by QBE/PMI and Genworth – but after the parent company’s credit was downgraded they left the market without being able to find a buyer!

Why didn’t the Government take this opportunity to re-enter the market using its good credit rating and rebirth the old HLIC – everything was in place and there was money in the deal for the taxpayer by way of profits, assets and lower interest rates by providing on-going support to the industry
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As we all know, the two insurers we have today do not provide competition. If you are declined by one, the other will automatically decline an application.

What happens then is the client is forced to seek bank funding or other higher cost base dollars. It just gets deeper and deeper.

Another mortgage insurer would provide for balance in the industry and maybe its time to push a little harder to keep a balanced book.
Martin Anstee
PCL Finance