Westpac is one of the big 4 banks in Australia. For the time being.
Displaying an amazing insensitivity to its customers, Westpac recently raised the cost of its variable home mortgage product by 45 basis points following the Reserve Bank’s decision to raise the central bank lending rate by 25 basis points.
The other big banks sat on the sideline and watched Westpac being pilloried. Even Kevin Rudd, Australia’s prime minister, felt compelled to comment.
Westpac then released an 8 minute animated video justifying the rate rise. In a tone that was both condescending and patronising, Westpac explained that raising mortgage rates was analogous to a banana smoothie producer having to increase the prices of its smoothies because of a shortage of bananas caused by a natural disaster. The natural disaster for the bank was the GFC, and the cost of Westpac’s most basic input, money, had gone up. So costs had to be passed on. Geddit?
To make the explanantion clear to its idiotic customers, the Westpac voiceover borrowed from the traditional opening sentence of many a children’s story: “Once upon a time there were big, lush fields of banana crops..”
You can see the video clip here: http://www.youtube.com/watch?v=dbRo98A1zZQ
This PR disaster has gone from bad to worse. Some of Westpac’s customers are beginning to wonder if Westpac was borrowing money to lend to its customers from a different central bank than its competitors. After all, if Westpac had to raise its rates, so would the others if they borrowed from the same source. Surely?
Enter the banana smoothie industry. Unhappily for Westpac, the banana industry in Queensland, supplier of yellow finger fruit to Australia, had indeed experienced a natural disaster in 2005-6. As cyclones Larry and Monica ripped through the sunshine state, between 80 and 90% of the banana crop was destroyed. Prices of bananas rocketed.
Banana smoothie producers faced significantly increased input costs. Did they pass on those costs? With some notable exceptions, no they did not. As one smoothie producer said “Market prices vary from $10 a box one day to $56 a box the next day…. and you simply cannot change prices on a daily basis”.
Is Westpac listening?