BOQ warns on funding crunch

And funding markets claim their first victim:

Capture

Looks like a profit warning to me!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

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    • Sorry for the double post, but just wanted this to have a bit more visibility. Taken from APRA December 2015 data: http://i.imgur.com/RgbK2KI.png

      These banks hold 97% of housing loans (both OO and investment) in the reported data. There’s something like 75 reporting institutions, so definitely heavy market concentration.

      Members Equity Bank are looking even worse than BoQ. As for the big four, from worst to best: Westpac, Commbank, NAB, ANZ.

      • would it be coincidence ted that me bank has upped their online savings account rates to 3.6%? hmmmmm

    • Yeah I love how carefully worded these press releases are. Translation we are going to cut jobs lol…

  1. Mining BoganMEMBER

    Quite a number of my fellow bogans went through BoQ for there housing loans over the last 12-24 months. These are the WA based ones.

    Just maybe BoQ haven’t kept their eyes on the ball…

    • MB,

      From talks around the sites, are there any banks that you would guess are worse off than others?

      • Mining BoganMEMBER

        Ha! If I knew that I’d have a Tesla on order.

        BoQ stands out for me because so many guys were complaining about the time it took to get approvals from them. In a time of easy credit it seemed like they were the bank of last resort.

      • Don’t overlook mortgage funds,…their cash flow is remarkably like a SIV.

        I have had some very revealing conversations with leading staff in that sector.

  2. I have recently opened a savings a/c with these guys. < $250K to stay within APRA govt deposit guarantee. I'm not really sure how a thinly veiled profit warning like that above could potentially affect depositors (like me). Any thoughts? Change financial institutions?

    • The BOQ engine may have just misfired for the first time but it will be spewing ugly black smoke long before it ever seizes up, so I wouldn’t be too concerned at this point in time.

    • It’s called bankmageddon. The Federal deposit guarantee vs the trillions of dollars in over leveraged banks holding mortgages to over leveraged Aussies. The deposit guarantee might not be enough if there is a truly devastating wave of house price falls due to increased soaring offshore bank funding costs. you can hold wealth outside the system in precious metals, Bitcoin.

      • ha ha! Awesome. Can I print that out and take it to the bank? The western financial system almost broke in 2008, i don’t think it has been structurally fixed, just propped up with more debt. I know you are probably right that it might not explode, but what if it does? Greece, Cyprus, Venezuela, Puerto Rico, Argentina, Deutche bank….. Actually is China going to pop too?

      • @Buzzy – In the extreme worst case, why couldn’t/wouldn’t the government print AUDs to meet its obligations? Far better option politically and financially than failing to back up the deposit guarantee.

      • AB, you are right that the gov can print. I would just worry about the purchasing power of those notes. Soverign and corporate bonds are in a massive bubble therefore not safe in my view.

      • @Buzzy, I agree with you about what would happen to the purchasing power of the AUD and my investments are majority-denominated in other currencies. But if you’re saving money to buy Australian assets then your purchasing power would likely go up as the economy goes down in flames.

      • Tassie TomMEMBER

        @ Buzzy – the Australian financial system DID break in 1893, and still almost all depositors of banks got their money back. Some of them took 15 years to get it back, but they did eventually. Depositors in “Land banks” or building societies weren’t so lucky.

      • There is no government that can print as much as banks were ‘printing’ in last couple of decades. What matters for inflation is not how much money is out there but who gets it and for what purposes.

    • and you believe the government will come to your rescue in such a catastrophic event – I doubt they’d be able to.

      • they will give with one hand and take from the other. you can’t get blood from a stone (those with debts) so the government will look towards those with the money ( those asking for the deposit guarantee will be deer in the spotlight).

      • I disagree. No government could do so without guaranteeing an election loss and completely destroying any confidence in the economy and its banking system.

    • Locus of ControlMEMBER

      If you’re concerned, maybe spread your $ around. Personally I have bank accounts with 5 institutions – 2 Dutch-based multinationals, 2 of the big 4 and HSBC. All accounts cost me nothing (no transaction costs if you use the ‘right’ ATMs, nil monthly fees) and bar the HSBC one, pay relatively (for these times) good interest ranging from 3.15 – 3.5% pa. All accounts were easily opened online and are readily managed online too. If one of those banks gets shaky or heaven forbid collapses, well I won’t lose all my $.

      I don’t consider myself a banking doomsayer, but after the GFC and the Cyprus bail-in, consider it prudent to have more than one banking option, a kind of insurance if you will.

      • I’m just saying maybe consider putting 5% of your capital totally outside the banking system. It’s very liberating and rebellious!

      • BoomToBustMEMBER

        @Buzzy – Agreed, we aim for approx 20% for though, almost there! Who do we trust? No one !!

    • Considering the sluggish real economy in SEQ I can’t see BoQ having grown their lending with much else except good ol’ property. Well, maybe business lending for outfitting new cafes but really what else has gone in in QLD in the past few years except cafes and units?

      Little story I shared yesterday – my manager is an enthusiastic property investor with multiple IP units in Brisbane, one of which was just completed. He’s now having trouble getting tenants and combined with falling rents has taken to self managing the latest unit and at least one other. He’s a decent guy and usually cool as a cucumber but lately has been stressed and out of the office, not to mention taking lots of personal calls.

      Scary stuff, when you consider this downturn has only just started…

  3. Are they really warning about a funding crunch or a possible average margin shave (ignoring most of the press release and focussing only on “significant increase in volatility in funding markets”.
    It’s an Australian Bank. It’s supervised by RBA/Apra. It has lender of the last resort at RBA. It can sell mortgages (possibly subject to repurchase agreement) to RBA (no way they would let it go under except in true absolute national catastrophe and political idiocy). It has an implicit governemtn guarantee on deposits to $250k. The Australian government is a sovereign issuer of a fiat currency so can hand out tokens like confetti if it so wishes. There is no way that BOQ true retail depositors of less than $250k will lose money. Look waht the Australian government did for banks in the GFC. They will do it again if needs be.

    • “The Australian government is a sovereign issuer of a fiat currency so can hand out tokens like confetti if it so wishes. There is no way that BOQ true retail depositors of less than $250k will lose money.”

      +many. If the shit really does hit the fan then the easy-way-out is printing. Stealing from depositors isn’t required if you can freely issue your own currency.

      • Indeed, and as recent history has amply demonstrated, such printing doesn’t cause a loss in purchasing power, because by the time you do it your money supply is contracting rapidly, and much of the new money goes straight to the banks’ capital buffers. Deflation all the way, baby, even with QE/printing.

      • From recent history it does not appear that printing is the problem, but rather who ends up with the printed money.
        I hope that if it comes to it the depositors are looked after and the creditors take a haircut.

      • “Deflation all the way, baby, even with QE/printing.”

        I agree. Despite all the warnings from the inflationistas, it looks like major deflation is coming in my view.

        “I hope that if it comes to it the depositors are looked after and the creditors take a haircut.”

        Unless the law changes, it’s only covered bonds that rank ahead of depositors even without the government guarantee. And I believe covered bonds are limited to around 8% of total assets.

        I can imagine a future where one of the Big 4 fails but I struggle to see any circumstance where the government guarantee isn’t honoured, even if it’s with printed AUDs.

      • @AB the law did change without anyone really noticing. because from a practical perspective Traded Derivatives rank above all other forms of debt. If a company declares insolvency all other creditors are put in line and wait for the liquidator to rape the carcass of the dying company and than hand out pennies on the dollar for the most senior of creditors. Only the derivative holders / counter-parties get to immediately sell /settle and take whatever cash they can while they can. get it and whats more they keep whatever they grab.
        worth your while to read up on the collapse of BS and Lehman and understand why it all unraveled so quickly. Everyone in a winning position closed out the position, leaving a skyrocketting mound of loosing positions stripped of their corresponding winning position hedges.
        Logically in a bankruptcy the liquidator would determine how many cents were to be paid out and do this in a somewhat fair and transparent manner….with derivatives liquidation is a mad rush for the door with lots of mispricing and some pretty blatant market manipulation.