Did APRA force the QBE LMI float?

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The Pascometer has an interesting observation today:

With QBE making issues and selling off bits and pieces to raise capital, someone more eagle-eyed than most spotted a sentence in the company’s results announcement that raises a question about whether a quiet little word has been had with the global insurance company.

…”When executed, these initiatives deliver significant additional cash and capital resources that will substantially improve the group’s financial flexibility and ability to better withstand a reasonable range of downside scenarios.”

After QBE’s increasingly monotonous run of downgrades, you don’t have to squint too hard between those lines to see a little concern about capital adequacy in the event of the odd natural disaster that has been (blessedly) missing from the insurance landscape lately.

CLSA analyst Jan van der Schalk says he’s argued for QBE to raise capital for the last two years. “We’ve always known that the balance sheet was stretched,” he said.

That’s an understatement. Last year QBELMI was supporting roughly $250 billion in higher risk mortgages with 0.8% capital. If that strikes you as a joke then consider yourself sane.

APRA may or may not have directly pushed QBE to float LMI but I can tell you one thing, it will will be very pleased that it has access to market capital rather than relying solely on a weakening parent.

Houses and Holes
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Comments

  1. Yep – the super funds (ie our money) will be all over this piece of road kill as if it were filet mignon…..Super’s become the great Aussie share market sponge that soaks up all the cr*p so everyone’s happy (ignoring those that super is meant to serve of course).

    Nothing like getting in on the top floor.

      • I wake in a cold sweat some nights over the Genworth and QBE LMIs. So many borrowers with such little equity extended loans because one or the other of these insurers stand behind them.

        A reasonable downturn in employment will prompt many to turn to their insurer – after all, they paid a very fat premium to protect the bank. They will want to collect. The capital buffers for both are mighty skinny relative to potential liabilities in this entirely plausible scenario. I think the game plan is to simply hand the LMI subsidiary over to the Adults, who will maturely write large cheques with taxpayers money.

  2. Do members of the RBA and APRA have to declare if they buy shares in that float?

    … or short the stock.

    • Ha, yep! Wouldn’t mind a decent options market for this one.

      “Last year QBELMI was supporting roughly $250 billion with 0.8% capital.”
      This is consistent with the 4 pillars.

      • Cheers @Swifty. I’m sure an equally proficient regulator as the FIRB ensures there’s no non-compliance on this.

      • Even StevenMEMBER

        @Andy – I see where you are going with this. A regulator for the regulator. But why stop there? I don’t think we’re *really* humming until we have a regulator for the regulator of the regulator 😉

      • Andy! – I would say that APRA does the same level of checks and reviews as what the Big 4 accounting do with their own staff to ensure compliance with SOX.

  3. Has something been put into the drinking water at APRA. Or is the lambasting they got from the senate inquiry finally getting them of their ass and doing what they should have been doing in the first place.

    Watching the 7.30 report last night, the head of APRA going on about Macquarie and their so called financial advice was kind of pathetic. If APRA hadn’t been shamed and called to account they would still be doing nothing. It was pathetic watching the head of APRA go on about how they had been ringing the alarm bells for ages about financial advice problems in the industry.
    Still dont explain why they never did anything other than that. Bunch of ingrates.

    • Saw that, & was thinking he was light years behind the curve. Stroking on about Mac Bank, as the floodgates are being opened again on FOFA.

      Did you mean ‘Bunch of inbreds”?

    • That was ASIC on 7:30….but yes, nearly choked on a hokkien noodle when he said “ASIC’s been raising the alarm bell on this for years”

      Yeah, right.

      • Even StevenMEMBER

        Hmmm I was about to say… financial services/ financial advice is ASIC’s bag, not APRA.

        The heads of APRA and RBA don’t seem to do interviews.

      • When our public regulators talk about sounding alarm bells they mean jingling the tiny ones attached to the toes of pixies.

        Apparently they sound quite loud in the sleepy hollows of the APS.