From Moodys: Sydney, August 31, 2012 -- The prime 30-plus arrears rate remained steady in the second quarter at 1.66% in June, and unchanged from March. In addition, the rate has not moved much from the same period last year when it was at 1.67%. While the overall index is at 1.66%, considerable variation exists within the market. Historically, major bank deals have performed better than those of non-major bank ADIs (i.e. other ADIs), which have, in turn, outperformed non-ADIs. The prime 30-plus arrears rate for the major banks is at 1.23%, other ADIs at 2.10%, and non-ADIs at...

From Banking Day comes a story you wouldn't read about: A soiree at the Playboy Mansion in Los Angeles this week for gun brokers affiliated to the Australian Finance Group has become a talking point in the industry. The event also serves to highlight the tension fostered by "sponsorship" by the banks of one of their most important stakeholder groups over and above commissions paid for loans. ...Spokespeople for ANZ, Commonwealth Bank and Westpac all advised that their banks did not sponsor the mansion event and their staff did not attend. ...AFG set individual brokers (who work for...

Last night FTAlphaville speculated on a truly remarkable possibility. The cross post is below: As fantasy banking M&A goes — this isn’t such an outlandish idea, we reckon. But see what you think: Following their strong share price performance in 2012, an obvious question arises as to how the Australian major banks can use their premium valuation, particularly given a subdued growth outlook. While attractive acquisition opportunities are scarce, following STAN’s recent derating it is increasingly becoming a viable target for the majors. While we attach a low probability to any of...

There is a growing degree of scepticism about the banking sector amongst analysts and it is not surprising. As UBS points out Australian banks' market capitalisation has now reached US$305bn, for which you could get: US Bancorp; Goldman Sachs; Standard Chartered; Deutsche Bank; and the entire UK domestic banking system. The scepticism can be seen in the neutral rating by Macquarie on Bendigo Bank despite arguing that it has the "best balance sheet in the sector". "Capital continues to grow, with core tier 1 capital at 8.09% helped by post balance date capital actions such as the IOOF sale and sale...

Last week while I was in bed with flu, Commonwealth Bank CEO, Ian Narev, declared that the bank is in favour of a new Wallis Inquiry into the financial system. So long, that is, as it's focussed on the following, from the AFR: Commonwealth Bank of Australia chief executive Ian Narev has warned that the country’s big banks may not have enough money to lend if economic conditions improved, putting pressure on the government to hold an inquiry into the financial system. Mr Narev commented yesterday after CBA defied the global economic gloom to post the biggest annual profit yet for an Australian...

Adding to the poor Bendigo Bank result today (which Macro Investor subscribers will be enjoying) comes a warning from Moody's: Sydney, August 20, 2012 -- Moody's Investors Service says that Australia's mutual financial institutions have strong balance sheets, as reflected in their asset quality and funding profiles, but slower credit growth and strong competition from banks for deposits will put pressure on the sector's profitability in 2012 and 2013. Moody's detailed its latest analysis of the industry -- which includes credit unions, mutual building societies and mutual banks -- in a...

David Uren at The Australian this morning picks up on BIS comments about Australia's enormous banks: The performance of Australia's banking sector is seen by world investors and our own authorities as one of the great sources of our economic strength since the global financial crisis. However, research by the Bank for International Settlements suggests the dominance of Australia's finance industry contains the seeds of economic vulnerability. Finance has grown too big around the world and cross-border lending too large, according to BIS chief economist Stephen Cecchetti. "Experience shows...

From Fitch today: Fitch Ratings-Sydney-15 August 2012: Fitch's stress tests of Australian residential mortgage-backed securities (RMBS) show the resilience of the ratings even through a severe sustained recession and house price deterioration. "Fitch conducted three scenarios stressing interest rates, unemployment and property price declines as the key drivers of defaults and losses. Concurrent increases in all three were run over a three year period, as well as removing the benefit provided by lenders mortgage insurance to show that Australian RMBS transactions, on the whole would remain...

The life of a banking system analyst can be lonely indeed. One tends to both offend and support all various interests at different times. I've been accused on MB of being a supporter of both Karl Marx and Ayn Rand whilst being a rent seeker for the non-Mega Bank Australian ADIs. I can honestly say I’m not a follower of any particular economic theory or have a barrow to push for any particular vested interest. I simply analyse how the financial system works with a view to identifying weaknesses and strengths. I’m not aligned to the dogma that is associated with every movement whether...

By Leith van Onselen Following on from the Prince's post earlier in the week, the Atlantic last night published an interesting article that attempts to explain why the market capitalisation of the Australian financial sector - i.e. the total value of securities on issue - is now worth more than the market capitalisation of the eurozone's financial sector: A big chunk of this shouldn't surprise us. European banks loaded up on subprime debt. Australian banks didn't. European banks made their own bad real estate loans. Australian banks didn't. And European banks are sitting on top of piles of...

By Chris Becker I missed a very interesting article came across the Bloomberg recently, my head down and proverbial up as earnings season gets into full swing, but I caught it on the rebound on my lunch break when our friends at interest.co.nz posted their Top 10 at 10 (NZ time!) - one of my few must reads of the day (Macro Morning being the numero uno). It comes in at No.9, but I reckon following the unfolding subprime dilemma it deserves to be placed at the top of the pile. Read on: 9. Switzerland trying to cool housing market - Bloomberg reports the Swiss National Bank (SNB) is...

By Chris Becker With the National Australian Bank (NAB) division of Megabank reporting flat 3Q trading results this morning, via Pragmatic Capitalism comes this interesting chart from Bank of America:  Given the fact that the Euro crisis is never ending (thanks to a lack of political compromise) it’s unlikely that the timing on this one will be anything remotely similar, but this statistic just jumped out at me as a sign of incredible skew in a large market.  It’s food for thought and as always, certainly not an investment recommendation, but a very nice 30,000 foot view of the collapse...

The Australian today offers an interesting debate among some insiders on the underpinnings for a new Wallis Inquiry. It actually turns out to be quite interesting thanks to Adam Creichton who delivers some home truths about moral hazard and inflated asset prices. The others, of course, react like he's from Mars, which is worth the price of entry alone. Enjoy! (And BTW, well done to The OZ for embedding its videos. Something the wider media is yet to...

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...

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...

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...

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...

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...

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...

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...

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...

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...

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...

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...

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...