Returns on equity from banks in the order of 20 per cent are unrealistic, Mike Hirst, the CEO of Bendigo and Adelaide Bank told a business lunch yesterday. Instead, banks should be regarded like utilities - businesses that traditionally deliver slower but stable rates of growth.
A report in
The Age cited Hirst's argument that one the reasons the global financial crisis was so damaging to the economy was that the market had long demanded from banks (though only occasionally received) a return on equity of more than 20 per cent. The Financial Review also reported on Hirst's speech.
"If you think about the role banks play in the economy, why do you need that sort of return?" Hirst asked.
"If you're demanding 20 per cent returns from something that is like that then, guess what, there's only one way you can get it. You take shorter-term decisions and more and more risk and in the end it blows up in your face,'' Hirst said.
Hirst told the lunch he took a 100-year view of running the bank, an approach he said he wished was more widely adopted.
The ROE at Bendigo was 9.0 per cent in the December 2010 half.
The Bendigo CEO also grumbled about the short-term horizons of investment analysts mostly interested in guidance on numbers to plug into their spreadsheets to produce a short-term profit forecast.