ANZ pays a high price as well

It appears that the Australian banking system continues to pay the price for the European crisis and its reliance on foreign funding. As I mentioned last week CBA paid a high price to issue covered bonds in the European market due to the costs of swapping Euros back to AUD.

It would appear that this pain has continued with ANZ’s auction later in the week. The result was a another +33bps on the Euro-based auction followed by a similar swap rate on the conversion, leading to a final rate of around +245bps.

Australia & New Zealand Banking Group Ltd. (ANZ) priced 1 billion euros of 10 1/2-year covered notes at 133 basis points more than the euro mid swap rate on Jan. 9, equating to about 245 basis points over the Australian benchmark, Bloomberg data show.

The spread on ANZ’s A$550 million of 6.75 percent senior unsecured notes due in May 2016 was 154 basis points yesterday, according to prices from the lender.

The five-year Australian dollar Euribor basis swap, which measures the cost of switching interest based on the euro area interbank offered rate, or Euribor, for payments linked to Australia’s bank bill swap rate, was last at 90.3 basis points, Bloomberg data show.

“While access to wholesale funding markets in the 2012 financial year has commenced with better momentum, funding costs for new issuance remain very elevated,” Rick Moscati, ANZ’s group treasurer, said by e-mail. The bank’s covered bond sale provides “good tenor extension to our funding profile and a differentiated set of investors.”

This rate suggests an outright cost to ANZ of about 6.7% for the funding using this source. Although it may not be a completely appropriate comparison is does appear that ANZ is currently offering a cheaper mortgage product than it can provide funding for via secured international wholesale markets.

All good fodder for Friday’s rate decision. It maybe time to prepare yourself for an out-of-band rise.

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  1. Today’s AFR has the ANZ as top spot for home loan growth. They would give this up quickly if they dont match their peers i rates.

    Equally, they may hold that dizzy position from not contracting their lending as fast as the others.

    Feel a bit sorry for the economic illiterates taking out big loans in a falling market.

      • i dont think there is any growth in the business for the next 6-12 months anyway. can only come from cutting costs (staff). That doesnt mean they are a bad investment though. The yeild on banks stocks will continue to look more and more attractive compared to the yeild in TD’s as interest rates get slashed. expect banks to remain well bid…

        • Jumping jack flash

          I think you’re right.

          Cutting staff doesn’t do the employment metric much good though…

          And don’t the house prices rely on employment?

          And don’t the banks rely on the house prices?

          • And don’t the house prices rely on employment?
            To keep employment numbers looking good, I guess they can fire FT staff and re-hire part-time/casual bank managers and tellers. 🙂

        • You can only continue to get good yield if your making good profits, loose your profits and their goes your share price and yield.

  2. I believe that the big 4 are chopping down their loan books to let the little the smaller lenders come in and pick up the scraps. The scraps are to risky in a stagnate market and even though the majority of people in the current economic climate can afford repayments the downside risk is not worth it.

    I can see the smaller lenders quota of loans increasing over 2012 while the big 4 consolidate, shave costs and sit back and watch the market and see how things pan out.

  3. Why are the banks going to Europe to do their funding like this? If I understand correctly, is this due to the lack of a mature corporate bond market in Australia and the heavy equities emphasis of super savings?

    • Only a guess, maybe our sense of entitlement to stuff (expensive homes) and rampant to desire to consumerism does not match ‘our’ ability to fund it.
      Let someone else stump up the credit, we take no responsibility for the outcome.

    • the heavy equities emphasis of super savings?
      Thank god for small mercies. The last thing we need is to tip more money into mega mortgages for existing properties.

    • I also would like to know the answer to this question.

      Are the banks not able to borrow money from the RBA or even the US banks at a lesser interest rate.

      If anyone can let me know i would be very interested in the answer, thanks.

    • The banks were doing this in an attempt to diversify their funding sources, because their reliance on single unsecured bond markets turned out to be a big problem during the GFC.

      The original idea was that covered bonds would provide a cheaper source of funding as well, but due to Europe’s on-going troubles this has not occurred.

      They have, however, now established a market for Oz bank secured issuance in Europe which is a positive, but they certainly paid a price. The risk is that this higher price may leak into their other markets, which is something they will need to manage.

      • So what you are saying is that they are voluntarily going to the European banks despite knowing that it’s going to be more expensive.
        But in the long run they will have access to a greater source of funds.

        Short term pain for long term gain?

  4. adelaide_economistMEMBER

    Interesting. As someone who holds most of their savings with ANZ, I have noticed quite a change of behaviour most recently in terms of interest rates for savings accounts.

    The first rate cut by the RBA in November was business as usual – the interest rate on my Online Saver was cut immediately by 0.25%. Ouch!

    By December, ANZ still passed on the cut in name but increased their ‘bonus’ rate by the same amount – 0.25% – so that 6% continues to be paid. I’d resigned myself to 5.75% at best so staying at 6% was a pleasant surprise.

    In addition, my account received a ‘click here to keep getting the bonus rate until March 2012’ link whereas previously I have had to open yet another Online Saver account via an ANZ advertising link to maintain the ‘bonus rate’ since they would just let the account revert (without fanfare!) to the base rate.

    Since no bank does anything out of the goodness of their heart (and I wouldn’t expect it, either), I am assuming maybe domestic deposits aren’t looking as expensive relation to other options as some opinion had it.

  5. Where can I find the Australian Dollar Euribor basis swap rates? Is there a website available or can this only be done via Bloomberg? Thanks.