The Westpac Effect

In the past six months Westpac bank has spent millions of shareholders’ dollars convincing us that it is: safe (we are factor 50 among other enthusiastic offerings of robust certainty), interested in service (we are bringing back the bank manager) and that above all it is by the people and for the people.

It’s not surprising then that in December last year when the Reserve Bank increased the prime interest rate by 25 basis points and Westpac leapt in with a 45 basis point increase, there were howls of protest and indignation from the market place.

In part this was because the market believed that Westpac was profiteering from mortgage stress.

Maybe it was, or maybe it was responding to the fact that in December the first home owners grant was going to be turned off. Maybe the bank wasn’t able to fund the mortgages it had at the lower rate or maybe, given that Westpac and CBA had dominated the mortgage flows for the past year, Westpac was just turning its business volumes down by increasing its price coming into December.

The other reason that the market howled about this supposed injustice was that they kind of liked Westpac.

The bank had started becoming the friendly, compassionate face of banking – focussing on the simple things, uncluttered by the foolishness and the excesses of the Global Financial Crisis – and then it raced to bump rates, by almost twice as much as the RBA.

Humans don’t like liars. In fact we are hardwired not to like them; it’s in our DNA, despite the rise of certain politicians.

We don’t like them on a fundamental level because things that are deceptive lead to pain and disappointment and in more basic times death.  So we are biologically unhappy with people and businesses that are dishonest.

Curiously at Coredata for the past five years, every December we have been asking Australians if they are considering refinancing their mortgage, why they are considering refinancing, who their mortgage is with and who they are considering refinancing with.

The chart below compares the average number of people who are intending to refinance their mortgage (expressed as a percentage of the sample) for each December 2004 – 2008 (inclusive) as compared to the sample for December 2009.

We don’t know what number of these people actually did refinance their loan as opposed to expressing their frustration via a survey, but it seems to suggest that at best Westpac could have handled the situation a whole lot better and at worst the bank has done permanent and lasting damage to its credibility.

If that is the case, then continuing to spend on sending a message about being safe, being focussed on service and looking after people is not shareholder money well spent.