Banks

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APRA castigates banks on hidden arrears

the-dirt-under-the-carpet From the AFR comes heavy-duty confirmation that all is not as it should be in Australian bank arrears: The banking regulator has warned lenders they are not doing enough to accurately report overdue loans in relation to home borrowers who are granted hardship concessions. ...Hardship concessions granted by banks when someone is ill or unable to work due to serious injury, typically allow for a reduction in the interest rate, lengthening of loan maturity, or full or partial deferral of interest for a temporary period. ...“APRA has seen some instances of ADIs [authorised deposit taking...
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Protecting the banks

Stability According to Banking Day: Momentum may be gathering regarding a delay in banking regulation reforms, with a planned inquiry into the financial system by an incoming Coalition government of the means of shepherding through any changes to policies that have already been adopted by the industry regulator, APRA. On Saturday, The Australian newspaper reported talk within the industry that a Liberal and National government "would protect the nation's banks… by linking up with other countries that enjoy the benefits of robust banking systems." In the past, industry representatives have voiced...
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Lenders say no on dodgy docs

article-new_ds-photo_55_247_fotolia_5947733_XS From Banking Day: Lenders are refusing to give borrowers copies of the loan application documents, according to a report in The Australian. It said Bendigo and Adelaide Bank has told borrowers they are not entitled to copies of their applications, while other lenders have told borrowers that such documents have been destroyed. In many cases, the borrowers affected took out low-doc loans. The issue is related to a campaign by a consumer group, Banking and Finance Consumers Support Association, claiming that lenders falsified loan documents to provide inappropriately large loans to certain...
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Australia’s sub-prime lending

ScreenHunter_04 Feb. 08 21.40 By Leith van Onselen Back in April, The Australian reported how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based on falsified or fraudulent information supplied by mortgage brokers: Under the scams, which draw parallels with US sub-prime lending practices, a number of mortgage brokers have been found to have substantially inflated incomes of low-income earners to allow them to borrow far more than they were able to repay. The Weekend Australian has also obtained dozens of emails between lenders and brokers that show the aggressive...
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A new Wallis Inquiry is not about competition

its time4 Yesterday and today there are a number of stories floating around, fired off by a new Deloitte report written by Ian Harper and commissioned by the mutuals sector,  arguing that Australia needs a new Wallis Inquiry into banking principally because there is not enough competition in the sector and the big banks are too big to fail. While I can only agree that competition is sorely lacking, arguing that we need more competition is putting the cart several miles before the horse vis-a-vis either addressing too big to fail or a new Wallis Inquiry. After all, it was competition that brought us to...
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Bank price downgrades

cba_ax_price_daily.02mar12_to_08aug12 By Chris Becker Interesting news just before the open this morning from Bloomberg and the AFR reporting that the Commonwealth Bank (CBA) and National Australia Bank (NAB) divisions of Megabank have been downgraded from "buy" to "hold", by Deutsche Bank and Citibank respectively. No wonder on CBA - check out the most recent price action, looking very bubblicious indeed: On the weekly chart the price has surpaassed the February 2011 false breakout and the consensus price target of $53.38 (Deutsche had $55): For NAB, the current price has not yet reached the consensus target of $26.43...
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More confidence clap trap

Cameron-Clyne NAB CEO Cameron Clyne is the latest luminary to appeal to a lack of confidence causing Australia economic problems. According to AAP, at an American Chamber of Commerce event Clyne said: "Part of the problem with this constant reference to two speeds is that people feel that if they are not in the express lane, they're going backwards, which is not the case". He said confidence, not interest rate cuts, was the key to boosting the economy. "Part of what's needed to restore confidence is broadening the debate from two speeds," he said. Mr Clyne said talk of two speeds ignored the fact that...
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My oath, say bankers

David-Oath_of_the_Horatii-1784 From Banking Day comes this gem: Six of Australia’s most powerful executives have formed a company to improve ethical conduct at local banks and fund managers. The Banking and Finance Oath Limited (BFO), incorporated last month, will oversee and enforce a voluntary oath of conduct to be sworn by professionals employed across the Australian financial services industry. ...This is the oath: "Trust is the foundation of my profession I will serve all interests in good faith I will compete with honour I will pursue my ends with ethical restraint I will create a sustainable future I will...
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No Lie-bor fix in Australia

stock-vector-vector-pinocchio-with-universal-no-symbol-concept-no-lying-19471591 The Australian has a short piece with with the head of the Reserve Bank's research department, Alexandra Heath, quoted as saying that BBSW, Australia's version of Libor, couldn't be rorted in the way that occurred in the UK: "I think there's been a lot of effort put into making sure that it operates in an effective manner" That's true, I think. The Australian Financial Markets Association (AFMA), of which I was previously a member, is responsible for overseeing BBSW rate each morning. It is an industry body but in my experience is a progressive organisation that takes seriously the regulation of...
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APRA holds the line on securitisation

edit(191113) From Banking Day: The securitisation industry has lost its campaign to persuade the Australian Prudential Regulation Authority to take a hands-off approach to the capital treatment of subordinated securitisation tranches on the balance sheets of approved deposit-taking institutions. Last November, APRA issued a discussion paper proposing an amendment to its prudential standard for securitisation (APS 120) that would require an ADI to deduct from tier-one common equity any holdings of subordinated tranches of securitisations that were originated by another entity. Industry submissions argued...
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Banks to escape Basel rules?

Steve-McQueen-triumph-Bonneville-T100-Steve-mcqueen-motorcycle By David Llewellyn-Smith From Banking Day: The major banks will have to wait for some time to learn of the Australian Prudential Regulation Authority's plans regarding what additional measures it will adopt as yet another regulatory caravan rolls by in the form of D-SIBS, or a set of standards that apply to "domestic, systemically important banks". D-SIBS are the domestic cousin of the G-SIBS, a list of 29 globally significant banks (which includes the most well-known, internationally active names). These banks need to hold between 1.0 per cent and 2.5 per cent in additional capital. The...
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Lowe repeats the bank dogma

bio-philip-lowe Find below a speech currently being delivered by Deputy Governor of the RBA, Phil Lowe. Not much new here: more regulation costing more is the basic theme. Plus a ladling of 'Australia is different' and outside of the "North Atlantic" crisis, even if affected by it. Philip Lowe Deputy Governor Remarks to the 41st Australian Conference of Economists Melbourne - 11 July 2012 Thank you for inviting me to be part of this panel on Bank Regulation and the Future of Banking. As you know, the world of bank regulation has seen a lot of activity in recent years. This activity has coincided with a...
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Westpac bonds enjoy mixed fortunes

cds From Banking Day: Retail investors in New Zealand have found the terms of two long-term debt issues from Westpac a little hard to take, with the bank selling less debt than it hoped in an offer that closed late last week. Westpac New Zealand (rated AA- by S&P) returned to the NZ retail market for the second time this year, hoping to raise up to NZ$400 million for five years and up to NZ$500 million for seven years. While the bank came close to its five-year target, raising NZ$385 million, it fell well short of its seven-year target, raising only NZ$235 million. It is understood the...
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Basel takes aim at Mega Bank

6a00d8341ca3bb53ef00e54f74efa38834-800wi1 The Basel committee has been busy and has finally released a consultative document, “A framework for dealing with domestic systemically important banks” (D-SIBS). This document sets out recommendations to local regulators (APRA in Australia’s case) on how local banks, which carry the risk that if they fail, it may cause systemic failure, should be regulated for their capital requirements to significantly reduce that risk. If you are an investor in Mega Bank, which makes up about 30% of the All Ords, then this is a very important document. So lets use the tried and true MB analysis method...
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Is Provident Capital a canary?

canary-in-coal-mine1 From Banking Day today: The Federal Court late on Tuesday confirmed the appointment of Philip Carter, Tony Sims and Marcus Ayres from PBB Advisory as receivers of Provident Capital, a Sydney-based finance company. The court had stayed orders first made late last week to allow the company time to appeal. Bendigo and Adelaide Bank, a secured creditor of the firm, provided $91 million in funding to Provident based on the December 2011 financial statements. More than 3000 investors are owed $125 million. In April the financier said it would cease to accept new investments in its...
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The LIBOR scandal will expose more naked bankers

Questions_are_being_asked_008 Some time ago I worked as a short term interest rate trader. Essentially I took bets on the movements in interest rates out to 1 year. I did this using a portfolio of bank bills, NCD’s (negotiable certificates of deposits), PN’s (promissory notes), Futures (bets on the level of interest rate at some time in the future) and FRA’s (forward rate agreements).  For more information please see this RBA paper. All of this tied together to make up a portfolio and then the interest rate risk was distilled down to what was known as a 180 day equivalent and I had limits around how much interest rate...
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Deposit rates come down more than loan rates

920-0530 From Banking Day: Financial institutions have cut their deposit rates more than their loan rates over the past two months. The latest Reserve Bank indicator lending rates, published yesterday, show that standard variable mortgage rates fell by an average of 35 basis points in May and 20 basis points in June. Lenders in the RBA data series passed on a total of 55 of the 75 basis point cut in the cash rate in May and June to mortgage borrowers. The average standard variable mortgage rate is now 6.85 per cent and the average discounted variable rate is 6.15 per cent. Small business borrowers...
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Keynes’ MegaBank

imgres Following Deep T.‘s regular probing analysis on the Australian banking system, the crew here at MacroBusiness often refer to the big four banks MegaBank.  Yet we are not the first. I came across an enlightening passage from Keynes’s Treatise on Money that came very close to using the term MegaBank. When introducing the concept of ‘bank money’ , the type of money created when banks write loans, Keynes notes: It follows that the rate at which the bank can, with safety, actively create deposits by lending and investing has to be in a proper relation to the rate at which it is passively...
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Mission accomplished for ANZ

GWBush_Mission_Accomplished_25-s200x200-179224 A couple of weeks ago ANZ claimed victory in its quest to find independence from the RBA in its intereat rate settings: ANZ wanted to stop the 'dog and pony show' that occurs after the Reserve Bank changes rates and we've done that by setting a particular date on which we will inform our customers how we will respond,” said Paul Edwards, ANZ's general manager of corporate communications. Perhaps the bank spoke too soon given today's Roy Morgan customer satisfaction ratings for May: Consumers’ satisfaction with the big four banks dropped again in May, down 0.3% points to 76,2%, due mainly...
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Australian banks most profitable in the world

Picture 4 The Bank of Interntional Settlements (BIS) released its 2011/12 annual report over the weekend and the results were spectacular for Australia's banks for the year: As a percentage of total assets, that's Australian banks at number one, with net interest margins at fourth, loan loss provisions at sixth and operating costs at second. No wonder they're on top. This is all the more remarkable given the following table of GDP and credit gowth, on which Australia's perfomance is miserable: Except fo course for one thing. This is a brilliant depiction of disleveraging, with Australia sporting...
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Moody’s downgrades the global financial system

dark-matter Wow. Moody's has downgraded pretty much all of the major capital markets banks in one go. These are the banks that form the money centres that are, in effect, the liberalised global financial system. By that I mean they are the market making conduits through which the savings of one country are recycled as the borrowing's of another country, both public and private, through endless mechanisms both on balance sheet and off. So it is a downgrade to that system itself, which is long overdue. New York, June 21, 2012 -- Moody's Investors Service today repositioned the ratings of 15 banks and securities...
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Relief for bank funding costs

cds Over the past week, CDS prices (the cost of insuring a five year bond against default) have corrected significantly on easing European worries: This pricing suggests the banks could now issue unsecured debt in the range of 160bps over swap, which is a long way down from last week. Of course, over the longer term the picture remains downright terrifying with a monster up trend still intact since the GFC began in...
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Mixed signals for financial stability

stability1 In what looks like a co-ordinated leak to offset any Greek jitters, David Uren at The Australian today carries a simple statement that: THE government is confident our banking system can withstand everything that Europe can throw at it without needing the guarantees that forestalled a bank run during 2008-09. The Financial Regulators Council has assured Wayne Swan that the banks have sufficient funding to withstand at least a six-month freeze on access to global markets and that there is additional capacity to obtain funding from the Reserve Bank should a global financial breakdown last...
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Covered bonds show bank funding stress

StressedOutFace From Banking Day: A recent resurgence in covered bond issuance by Australian financial institutions provides evidence of deteriorating market conditions. The four major banks have continued issuing covered bonds since the first issues were made in November last year. But the initial rush of issuance lasted only until early March, with there being just a trickle of issuance more recently. Suncorp flagged the possibility of changing conditions with its A$1.6 billion covered bond debut on May 30. The next day, ANZ sold HK$400 million of three-year covered bonds. The floating-rate bonds were...
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NAB culls business bankers

6870509-a-unique-red-gear-falls-out-and-the-machine-breaks-down From Banking Day comes the news that Australia's is developing another large building society: National Australia Bank is cutting the number of business bankers on its payroll and steering customers towards call centres for help instead. Over the last week, customers of NAB have received letters signed by Cindy Batchelor, the bank's head of small business banking, advising them of the change. "Instead of one banker, you now have a team of small business specialists who can help advise you," Batchelor wrote. The decision reverses a long-standing facet of NAB's business model in business...
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Treasury wants RMBS market free of government support

ScreenHunter_05 Mar. 12 11.39 By Leith van Onselen From AusHousingCrash via Twitter comes news that the Australian Treasury recommended that the Government formulate a policy that frees the Residential Mortgage-Backed Securities (RMBS) market from Government support. According to the below Treasury Executive Minute, obtained via Freedom of Information, three-quarters of the $20 billion of Government support earmarked for the RMBS market remains, which is likely to be fully spent within the next year. There remains around $5.4 billion within the AOFM program (including the $4 billion announced in the Government’s...
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The deposit dilemma

piggy-bank The variability within the Australian economy seems to be a mystery to some and simple to others but I doubt many have considered the “deposit dilemma”. In the following paragraphs I am going to outline an hypothesis about how Mega Bank (the big four) has a sleeper hold on the Australian economy due to the inappropriate creation of deposits. Credit will be given in future posts if the hypothesis has been outlined by others. The hypothesis is that Mega Bank has been allowed to create an excess of deposits to fund lifestyles and retirement for a select group and this is ultimately slowly...
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Westpac slice 20, CBA slices 21 (updated)

westpac hands Australia's biggest building society, the Westpac branch of Megabank, has announced its cutting its key lending rate by 20 basis points - or 0.2%, keeping 5 basis points of the RBA cut from earlier this week. That equates to a standard variable rate of 6.89%, but in reality the discount rate is 0.7% lower at 6.19%. Update: CBA has now announced a 21 basis point cut in their standard rate. We await the last division of Megabank, NAB to...
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March quarter RMBS arrears rise

increased market Missed this yesterday from Moody's. First quarter RMBS arrears jump: Sydney, June 07, 2012 -- Moody's Investors Service has announced the publication of a new quarterly report that will track the performance of the Australian RMBS market. The new report was published today with performance data up to first quarter 2012, and covers the prime and non-conforming sectors. ...The current report shows that delinquencies rose in the first quarter of 2012 despite the easing of monetary policy which occurred in late 2011. Prime deals (excluding low doc) 30-plus arrears marginally increased...
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Deposit growth slows

From Banking Day: Household deposits continue to grow at a faster rate than home loans, according to the latest Australian Prudential Regulation Authority banking statistics. This is good news for banks trying to increase the proportion of their funding coming from deposits. Total household deposits grew by 8.3 per cent during the 12 months to April 2012. Over the three months to April, the growth dropped back to 1.7 per cent – an annualised rate of 6.8 per cent. Total mortgage balances grew by 5.7 per cent over the 12 months to April and by an annualised rate of 5.2 per cent over the...
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John Laker on bank funding

Find below John Laker's opening statement to the Senate Standing Committee on Economics. It's a reasonable take on where the big banks would find themselves in the event of a global markets freeze: OK for a "period of months".  Of course, any thought of moral hazard or private risk is no longer relevant to such discussions. Since the middle of 2007, when the global financial crisis first erupted, I have provided this Committee with regular updates on how the Australian financial system has been faring and on APRA’s supervisory activities. Looking back over this whole period, it has been...
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Fitch: Bank funding improving

From Banking Day today: The composition of major Australian banks’ funding is improving, but only slowly, Fitch Ratings said yesterday. Fitch downgraded three of the big banks in February, citing their dependence on offshore wholesale funding markets as the main reason for the move. Commonwealth Bank, National Australia Bank and Westpac were cut from AA to AA-, while ANZ’s rating was left at A-. A Fitch financial institutions' director, Tim Roche, told delegates at the group’s credit forum, held in Sydney yesterday, that the funding position of the local banks was improving, with...
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Chinese bank lending crashes

China_Panda Courtesy of Also Sprach Analyst. A week or so ago, we learned that the big four Chinese banks (ICBC, Bank of China, China Construction Bank and Agricultural Bank of China) lent virtually nothing for the first two weeks of May. Now, we learn that the big four banks have still lent virtually nothing for the first 20 days.  Well, just RMB34 billion, to be precise, compared with over a trillion in March for the total banking system, according to 21cbn.com.  At the same time, the big four banks lost RMB270 billion of deposits in the first 20 days However, it is noted that apparently the NDRC has...
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European default and Australian banks

The AFR has a no worries, be happy piece this morning about bank funding in the current environment. It begins: Commonwealth Bank of Australia group treasurer Lyn Cobley has shrugged off renewed concerns over Greece’s sovereign debt problems, saying European funding markets remained open for high quality Australian banks, albeit at a higher price. Ms Cobley said CBA was well placed to ride out the ructions engulfing the European financial system. ...“I don’t think there is a problem with markets being opened, I think it may just be a little more expensive than it was a week or two...
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How to fix banking

Over the weekend, there was a convergence of very good articles arising from JPMorgan's illustration that not much has changed in banking. These articles showed that there are better ways to align management with outcomes that balance the needs of national and global economies beyond the current privitised gains and socialised losses approach. The first of these articles was by Sell On News at MacroBusiness. Titled "Derivatives need a Priest" SoN posed the question about markets and what are they for: ...we can ask how it was that a system created for people ended being blind to people,...
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