Congratulations to ANZ Banking Group's tough new chief executive Shayne Elliott for both (partially) pulling the plug on the bank's misguided Asian expansion strategy, which I have criticised since 2009, and for parting ways with many of his spendthrift predecessor's overpaid and underperforming executives.
As Morgan Stanley's Richard Wiles bluntly highlighted, ANZ's total returns have been 40 per cent lower than the other three majors over the past five years. Selling ANZ's potpourri of Asian minority interests will hopefully liberate around $4.5 billion of much-needed equity capital (ANZ is still carrying too much leverage) while the explosive growth in its Asian loan exposures to north of $100 billion, which has been a predictable source of impairments, will slow dramatically, if not stop altogether. These developments are credit positives for the bank.
Elliott is presumably channelling the intensity of his hero, recently retired All Blacks legend Richie McCaw, with his ruthless focus on risk management, capital, costs and returns. Yet he has much more work to do to get this bloated behemoth (all the majors are overweight cost-wise) back into shape. In this regard, Elliott's fancy "digital strategy" is really code for harnessing technology to slash operating expenses and encourage innovation, which are commendable goals. 
As BlueNotes' Andrew Cornell noted during the week, life is not getting any easier for the banks, with a sharp jump in funding costs. This may warrant an increase in lending rates in the year ahead, which only heightened competition will prevent. Specifically, the cost of raising five-year money for a major bank has risen 40 per cent in credit spread terms from 82 basis points over the bank bill swap rate last year to 115 basis points today. If the majors can get away with it, they should lift loan rates to compensate for this margin compression.
My broader advice to Elliott and his chairman, David Gonski, is to ape Macquarie by cutting base salaries to below $400,000 and boosting pay-for-performance sensitivities via long-term equity (not cash) grants with claw-backs if there is strife (cough, bank-bill-swap-rate-rigging?). They should also replicate Macquarie's highly streamlined decision-making model. This would involve: eliminating the innumerable and consensus-based committees that thwart innovation inside major banks; telescoping control of key commercial calls back to a single bank-wide executive committee advised by one risk management group; and delegating all decisions below this materiality threshold to staff empowered to hit home runs.
Best bankers?
After weathering the global financial crisis better than any competitor, Australia has the best bankers in the world, right? (Ignore the once-in-a-century tailwinds of China's urbanisation and the resulting resources boom). The problem is that there is a dirty little secret behind the fairy-tale of Australian banking exceptionalism: without sounding too xenophobic, our major banks are not run by locals. Seven of the eight last major bank bosses were foreigners.
As a passionately parochial patriot, what I find most disturbing is that that sad excuse for a country across the ditch, with a population smaller than Sydney's, has contrived to stealthily control our banking system. The current (Ian Narev) and former (Ralph Norris) CEOs of our biggest bank, CBA, are both New Zealanders. Shayne Elliott (ANZ) and Andrew Thorburn (NAB) are likewise Kiwis. Three of the four major banks are therefore under the influence of a foreign power. (Thorburn, Elliott, and Narev even attended the same university, which must be a conspiracy!)
But it gets worse: Westpac's CEO, Brian Hartzer, is an American (we needed another yank, Boss Joss, to save the bank in the 1991 recession). Hartzer's predecessor, Gail Kelly, came from South Africa. ANZ was previously run by a Pom (Mike Smith), and prior to that by a Scot (John McFarlane), who wanted to appoint Hartzer, not Smith, as his successor.
The one contemporary exception is NAB's former CEO Cameron Clyne, although he was preceded by another dour Scot in John Stewart. Even AMP's head honcho, Craig Meller, was born in Britain. And who can forget the brash American, George Trumbull, that we hired to demutualise AMP only to infamously describe the east coast establishment as "yellow-bellied Australian cowards".
Yes, I know, many of these folks nab Australian residency and/or citizenship, which is the least they can do after pulling down $10 million plus annual pay packets (Trumbull's golden parachute a decade and a half ago was $13 million). The unalloyed truth is, however, that Aussie banking supremacy is a myth. Perhaps because of some deep inferiority complex deriving from our dubious heritage we just don't trust ourselves to tend the till.
China fatigue
The best news for investors during week was that after freaking out over the shocking 25 per cent crash in the value of the Shanghai Composite Index (SCI) over the first 28 days of   January, the world is finally getting China fatigue. With the benefit of hindsight one can confidently say that equities in the second largest global economy were in a bona fide bubble in mid-2015. Since   June 11 last year Chinese share prices have tumbled 48.2 per cent, with no sign yet that they have found a base.
With the Chinese Communist Party making it impossible for institutional investors to efficiently dispose of substantial shareholdings (they are limited to a maximum of 1 per cent per quarter), fund managers have been exiting the non-free market in droves. It's just not viable for institutional portfolios. And after various futile attempts to bolster stock prices with hundreds of billions of dollars of direct asset purchases through state-controlled proxies, the CCP appears to have been overwhelmed by the capitalists and is now reluctantly watching the bubble deflate. Make no mistake, this is a humiliation for President Xi Jinping and the "Beijing Consensus" that was in the ascendancy in the aftermath of the global financial crisis. Recall that in   June 2015 Xi reportedly told a journalist "it's good to trade shares" and forecast that the SCI Index would "soon hit 10,000 points" (it's trading around 2650 points today).
When the SCI slumped 7 per cent on the first business day of 2016 - before trading was halted by China's now-extinct "circuit-breakers" - developed-country bourses fell in sympathy. This anxiety was amplified when the SCI suffered further drops of 7 per cent on   January 7, which triggered another market closure, and 5.3 per cent two days later. By   January 8 the world's most influential marginal price-setter, the S&P500 Index, had retrenched 7 per cent on the back of the SCI's 15 per cent loss and the free-falling oil price.
Yet by   January 21 investors had developed some immunity to the bursting of the Chinese equities bubble. When the SCI declined 3.2 per cent on that day, US shares ground out a 0.5 per cent gain. And after the SCI tumbled a chunky 6.4 per cent on   January 26, the S&P500 rose 1.4 per cent. This pattern was repeated on Thursday when the SCI lost another 2.9 per cent yet US shares finished up 0.6 per cent.
After my "China's war on markets" thesis was published, one of Australia's most senior spies averred that "economic turmoil will lead to political turmoil in China in the next few years", which would "probably test the one party political model for the first time in 30 years". In the meantime, investors should draw succour from the fact that the largest economy in the world, the US, is powering along, and the supply-shock-induced plummet in the price of oil is a positive for global growth.