There is an unusual dynamic to bank brands. As soon as a pollie gets up to sink the slipper into the banks, their share prices generally seem to rise as quickly as their interest rates. To turn Shadow Treasurer, Joe Hockey's words back on him, a shellacking from a pollie is, to a bank, like being slapped in the face with a wet lettuce.
You see, when banks raise interest rates, to shareholders it reflects good financial management because the action is:
a) to increase margins; or
b) to maintain margins as funding costs increase; or
c) both (although it surely would be churlish to suggest any bank would use the funding cost argument to increase margins!).
Note that I said it reflects 'good financial management'. If you subscribe to the ESG approach to evaluating company performance, financial management and profitability is but one component of good governance.
So I wondered what it meant when Westpac CEO, Gail Kelly, got up and said her bank's record profit was a 'quality result'. Westpac has been at the forefront of promoting and reporting so-called 'triple bottom line' accounting. Yet was Ms Kelly's reference to a 'quality' result a reference to outstanding performance across all ESG criteria, or just the financial component?
Although brand creates awareness, investors don't necessarily buy into it, but consumers do. That is why I think it is so easy for Joe and the boys to have a crack at banks, while their share prices increase. A consumer buying into a bank's brand believes raising interest rates is not contributing to, or even considering, the broader social good, let alone their own. An investor in the bank generally thinks differently.