The Aussie bank safe harbour meme

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Given the headwinds facing the Australian economy with regard to household restraint, lack of demand for credit and so on, challenges are evident for the listed banks. I am of the belief that households desire for savings is a structural shift so the demand for the services Australian banks offer is likely to be stagnant to down in ‘real” terms. The sell off since April is getting long in the tooth but we’d rather be owners of Australian bank debt than equity in the current global environment where capital gains are so hard to hold onto – as the Westpac chart below suggests.

The same thought appears to have occurred oversees. Yesterday afternoon, Bloomberg ran a story describing how many offshore investors are changing their tune to Australian Banks, at least their debt, and using them as a safe harbour in the coming Greek default induced market storm. Bloomberg says:

Bond investors seeking refuge from Europe’s sovereign debt crisis are finding Australia’s banks safer than their global peers, even after the top four lenders’ credit ratings were downgraded last month.

The nation’s biggest banks, cut one level to Aa2 by Moody’s Investors Service, don’t own Greek debt and get at least 70 percent of their revenue from Australia, where growth is forecast to outpace the U.S. and the euro region next year.

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But is this true?

We are not so sure that it isn’t just a good story that isn’t really backed up with price action. For example let’s have a look at the Credit Default Swap Spreads of Australian banks and then against their global peers.

In the first chart above we can see that the Big 4 are fairly generic when it comes to their CDS spreads. So for comparison purposes we can just use one of the 4 when we are looking at global banks.

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So how do they compare on a global scale?

I have used Westpac as my Aussie bank proxy and it is just mid ground. Soc Gen, Barclays, Erste and BNP Paribas are all above them while UBS, Wells Fargo, Credit Suisse, Deutsche, JP Morgan and HSBC are all below Westpac.

Not an exhaustive list by any stretch of the imagination and while not on this chart what we see is that Westpac’s CDS spread moves pretty much in line with the average of the selection of Banks.

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Therefore I would conclude that while the Australian majors may eventually be looked at in a different light for the moment there is scant evidence of it yet.