Shareholders still don’t understand the pain of Wayne Swan’s banking reforms: Gottliebsen

It’s amazing what can happen to a treasurer in the space of half a year or so. In the first half of 2010 Wayne Swan announced what I believed to be one of the worst thought out taxes ever imposed on the Australian people – the original mining tax. A half a year later when Swan announced his banking package the difference in his professionalism was amazing.

Remember, it was the original mining tax that sparked an enormous campaign by mining companies and was a big contributor of Kevin Rudd being deposed as Prime Minister.

There was a good case to revise the taxation of Australian mining companies but the proposal brought forward by Swan and Ken Henry was simply not properly thought out and it would seem the decision to impose it was made without detailed consideration or analysis.

And Swan can’t seem to escape the mining tax mire because the miners agreed to the new tax believing that they were insulated from state government royalty increases.

But in banking it’s different. Whether you agree or disagree with the Swan package it had been much more carefully thought out and has embraced a number of ideas that had been proposed by shadow treasurer Joe Hockey. As I explained at the time, the government is well on the way to making large sectors of the banking industry a commodity product which will cut banking margins.

For the banking industry the sad thing is that this change might never have taken place but for fundamental errors made by the bank boards and management.

Swan has never been a big risk taker and the mining tax fiasco has made him even more conservative.

Many in the parliament never believed he would take a major step in banking reform. He probably wouldn’t have moved but for two events. First, ANZ CEO Mike Smith attacked opposition leader Joe Hockey. Although politicians fight each other and appear to be enemies, there is an unofficial camaraderie and when Smith attacked Hockey it triggered sympathy for the opposition treasurer and so a possible set of actions began to be drafted.

Then the Commonwealth Bank and the other banks snubbed their noses at Swan and Hockey and raised interest rates above the Reserve Bank level. Swan was so enraged that he decided to act.

But in contrast to the mining tax a great deal more care was taken because he could not afford to destroy the banking industry.

At this stage most bank shareholders do not realise what has happened to their business, but in time they will understand and when they do their first anger will be directed to Swan and Hockey. But this will switch to the CEOs and boards who were so besotted with the need to achieve institutional profit targets, that they let short-termism get the better of their longer-term judgment.

They should have taken the current margin blows on the chin and waited until profits started to be affected before launching a strong campaign to lift interest rates. Instead they made their moves when recent profits had boomed. They only have themselves to blame.

This article first appeared on Business Spectator.