ANZ CEO backs US rescue package

ANZ Banking Group Ltd chief executive Mike Smith has backed the US government's
$US700 billion ($A841.25 billion) plan to bailout Wall Street firms, saying it is
the only way to stabilise financial markets and avoid a US depression.
Speaking at an Australia-Israel Chamber of Commerce lunch in Sydney on Thursday, Mr
Smith said the banking system in the US would go into a complete "freeze" if the
package was not implemented, resulting in a huge knock-on effect around the world.
Asked if a depression would result if the proposal, which is currently before the US
Congress, were rejected Mr Smith said: "Yes, no doubt about that, absolutely."
"There is no choice," Mr Smith said.
"This is it."
Mr Smith said after the function that if the package - which will be used to buy bad
debt from financial firms and put it into a dedicated fund - was not approved there
was "the prospect of a depression in the US and a significant downturn globally".
While some lawmakers in the US have baulked at the huge cost, Mr Smith said the
money would be recouped in the years ahead as economic growth picked up and tax
receipts increased.
"The downside of not doing it actually will affect those taxpayers far more in the
longer term," Mr Smith said.
The turmoil in US financial markets has, so far this month, resulted in 158-year-old
investment bank Lehman Brothers filing for bankruptcy protection, the near-collapse
of giant global insurer American International Group (AIG) and the bailout of US
government-backed mortgage sponsors Freddie Mac and Fannie Mae.
Although the share prices of Australian banks have taken a hit, Mr Smith said the
local banks were all performing well and would come out of the crisis in a strong
position.
He said of the 250,000-odd banks worldwide, only 18 were rated at a high AA for
credit worthiness and of those, four were Australian - ANZ, Westpac Banking
Corporation, National Australia Bank and the Commonwealth Bank of Australia.
"That says it all," Mr Smith said.
Asked by a member of the audience if customers' money in the banks was safe, Mr
Smith said: "Of course."
"When you look at their capitalisation, when you look at their liquidity, when you
look at their profitability, their management, they are some of the best banks in
the world."
His views were echoed by the Reserve Bank of Australia (RBA), which gave the local
banking industry a tick of approval in its semi-annual Financial Stability Review,
released on Thursday.
The RBA said Australia's financial system had "coped better with the recent turmoil
than many other financial systems".
While Mr Smith praised how the financial sector had performed amid the carnage
overseas, he said local banks would become irrelevant globally unless the four
pillars policy, which prevents the big banks from merging with each other, was
scrapped.
"The four major banks will come through this looking pretty good but in terms of
global relevance, we will be nothing," Mr Smith said.
"We'll be minnows in a pond until such time as we are able to consolidate the system
here a bit more and get some size.
"I think in the present political climate it would be very difficult because the
government has reiterated several times that it is supportive of the policy."
He described the competitive arguments against such mergers as "pretty remote frankly".
"I don't think there would be a problem there," Mr Smith said.
The US crisis sparked a fresh round of consolidation last week among financial
companies overseas, headlined by Bank of America's buyout of Merrill Lynch and
Lloyds TSB's takeover of Halifax Bank of Scotland.
And earlier this year, JPMorgan Chase, with the support of the US Federal Reserve,
bought out investment bank Bear Stearns.
On domestic borrowing rates, Mr Smith said it was in "nobody's interests to keep
rates high", but declined to guarantee ANZ would continue to move in line with
future rate RBA decisions.
"The stress that high rates gives is good for nobody," Mr Smith said.
"However, I have to fund the book and am running a business. So we'll have to wait
and see."
The RBA next monthly board meeting is on Tuesday, October 7. It is expected to cut
official rates by 25 basis points.