My accounting has become a bit rusty, so readers in the profession can judge this Blog for themselves. The Chair of ANZ Bank (who used to be Chancellor of Auckland University!?) and its CEO told a Parliamentary Select Committee into Banking Competition yesterday that its $2 billion annual profits were "fair".
CEO Watson told MPs the bank's shareholders had invested $17 billion into ANZ which meant it was probably NZ's "biggest importer of overseas capital .. In return for that $17 billion investment from our shareholders, we make just over $2 billion in net profit after tax each year .. That's a 12 per cent return on equity, which is middle of the road for most publicly listed companies in NZ".
Now take a look at ANZ's accounts for year ended March 2023 (downloadable below). They report profits of over $2 billion, "share capital" of $12 billion and "retained earnings" of $5 billion, giving total shareholder "equity" of $17 billion - which is the number CEO Watson appears to refer to. In other words, there never was $17 billion worth of funds that NZ has benefited from in the sense of it being "imported from overseas" from foreign shareholders. Instead $5 billion of that $17 billion are profits extracted from Kiwis, primarily from interest on their household mortgages. In my view, the CEO's claim that its "shareholders" are only getting a 12% return (being $2 billion / $17 billion) is misleading. The original size of their investment is closer to $12 billion, so the return on that investment is far higher.
Here's a simple example. Say you invest $1 million in a company that has monopoly powers. You make a whopping 25% return on your investment, being $250,000 per year. You retain all of those earnings in the company. After four years your balance sheet reads "share capital $1 million" and "retained earnings" of $1 million (being four years of earning profits of $250,000). That is, in only four years, your $1 million investment is now worth $2 million on the back of your monopoly powers. You get investigated by a Select Committee of MPs looking into competition in your industry. You tell them that you're making a "fair" return on your business - that you've invested $2 million in the business and are only making $250,000 a year, being a 12% return, which barely compensates for the risk. But that's not true. You're making a 25% annual return on your initial investment of $1 million.
ANZ bank is majority owned by Americans. Its giving them a high yield, probably because of less competition in NZ. The Americans never did invest $17 billion here. Much of that so-called "equity" comes from retained (oligopoly) profits made out of local Kiwis. I stand to be corrected & apologize for mistakes in my accounting. Should I not be mistaken, maybe its the CEO of ANZ who should apologize to the Kiwi public & MPs for what, in my opinion, may amount to playing with statistics and numbers to create confusion.
Sources:https://www.1news.co.nz/2024/10/23/anz-tells-mps-that-2-billion-annual-profit-is-fair/
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
Now take a look at ANZ's accounts for year ended March 2023 (downloadable below). They report profits of over $2 billion, "share capital" of $12 billion and "retained earnings" of $5 billion, giving total shareholder "equity" of $17 billion - which is the number CEO Watson appears to refer to. In other words, there never was $17 billion worth of funds that NZ has benefited from in the sense of it being "imported from overseas" from foreign shareholders. Instead $5 billion of that $17 billion are profits extracted from Kiwis, primarily from interest on their household mortgages. In my view, the CEO's claim that its "shareholders" are only getting a 12% return (being $2 billion / $17 billion) is misleading. The original size of their investment is closer to $12 billion, so the return on that investment is far higher.
Here's a simple example. Say you invest $1 million in a company that has monopoly powers. You make a whopping 25% return on your investment, being $250,000 per year. You retain all of those earnings in the company. After four years your balance sheet reads "share capital $1 million" and "retained earnings" of $1 million (being four years of earning profits of $250,000). That is, in only four years, your $1 million investment is now worth $2 million on the back of your monopoly powers. You get investigated by a Select Committee of MPs looking into competition in your industry. You tell them that you're making a "fair" return on your business - that you've invested $2 million in the business and are only making $250,000 a year, being a 12% return, which barely compensates for the risk. But that's not true. You're making a 25% annual return on your initial investment of $1 million.
ANZ bank is majority owned by Americans. Its giving them a high yield, probably because of less competition in NZ. The Americans never did invest $17 billion here. Much of that so-called "equity" comes from retained (oligopoly) profits made out of local Kiwis. I stand to be corrected & apologize for mistakes in my accounting. Should I not be mistaken, maybe its the CEO of ANZ who should apologize to the Kiwi public & MPs for what, in my opinion, may amount to playing with statistics and numbers to create confusion.
Sources:https://www.1news.co.nz/2024/10/23/anz-tells-mps-that-2-billion-annual-profit-is-fair/
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Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
5 comments:
You know the government is doing a good job when dishonest, thieving, Australian bank bosses are caught out lying.
Robert, I trust you sent your article to Stuart Smith and Nicola Willis. I also look forward to reading your article on the front page page the NZ herald.
And then there is the Gross profit from where tax is paid to retain earnings from profit and the corporate tax paid as required so the confusion is deliberate. Alligator tears when telling MP's that our shareholders and share price requires us to screw customers and trample on interest earning depositors . Next they will say that banking should be like Maori and others trust entities and pay NO tax on profits .
Fractional reserve banking, such an honest occupation, would only attract honest, God-fearing people, surely??
Maybe Disraeli got it wrong? Lies, damned lies, and banking? But whatever, they're doing rather nicely making such a profit - especially when the boss has a $2m annual salary package.
And then there is the return on assets. You make massive profits, your value goes up (along with the share price) and then you want a good return on that inflated asset value - as the shareholders expect a commercial return on their investments.
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