Shire’s claim banks ‘too risky’ is ‘ridiculous’: financial analysts

Hedland councillors are tossing more than $100,000 into the bin every month, according to senior Australian financial analysts.

Their comments came as Town of Port Hedland councillors last month decided to invest $160 million from the lease of the airport into the WA Treasury Corporation rather than Australian bank deposits.

Town staff had hoped to earn $426,000 in greater interest over four months by depositing the payment into Australia’s four big banks, the Commonwealth Bank, NAB, Westpac and ANZ, as well as other premium rated Australian banks.

Deputy Mayor Camilo Blanco argued the money was not safe in Australian banks because they – and by extension the savings of Hedland residents who keep their savings in deposits – were about to be lost in a catastrophic global financial meltdown.

But one of Australia’s top financial analysts Morningstar’s David Ellis branded his claims ridiculous.

“It is just ridiculous to put forward an argument that the four major banks in Australia are too risky to place that sort of money for that length of term,” he said.

“Any ... deposit in any of the four major banks in Australia would have to be one of the ... safest places to invest money short term ... anywhere in the world.”

Council’s decision comes as the Town looks to manage its once in a generation $160 million windfall from the lease of the airport.

When the previous council agreed to lease the airport last August, they also agreed to place the money temporarily with WA Treasury Corporation, until an independent committee was established to manage the money over 50 years.

But staff approached the new council last month to gain their approval to instead place the money temporarily in bank deposits until the committee was set up.

Councillors Blanco, Louise Newbery and Jan Gillingham voted against the plan because they said they did not want to take risks.

But Mr Ellis said the Town’s plan had been sensible.

“All major banks are regulated by APRA (Australian Prudential Regulation Authority),” he said.

“APRA is a very effective and robust regulator and I would have the full confidence in any of those banks you raised even though not all of them of course have as high credit rating and as strong a balance sheet as the four major banks.”

“If (we are on the edge of a banking collapse) then the whole economy, the whole country … every individual and every company in Australia is in a lot of trouble.”

Fellow senior analyst from Credit Lyonnais Securities Asia, Brian Johnson, also said it was sensible to spread the investment across multiple banks rather than a single institution.

“In Australia we have a very, very sound banking system and the likelihood of seeing a major bank in Australia default over a relatively short timeframe is negligible,” he said.

However, Curtin School of Accounting professor David Gilchrist said while the risk was not high in this instance, it was good councillors had a cautions rather than a reckless mindset when it came to preserving the $160 million income.