A few readers have asked me if the wholesale funding squeeze Australian banks are caught is any worse here than elsewhere. Well, here is your answer in a chart of 5 year CDS prices for CBA versus Wells Fargo in the US and Credit Agricole in Europe (data from Bloomberg):
These three banks are all too-big-to-fail mortgage monsters so are comparable in their respective market positions. You can see that in past crises Australian banks have tracked banks at the epicentre of respective conditions. This time, however, they are leading it in developed markets. This is not unexpected because:
- of Australia’s commodity exposure;
- Australian just undertook an enormous external borrowing binge to fund house prices to offset the mining bust,
- and, the nature of the Mining GFC as a commodity debt event places Australia squarely in the risk bracket.
We can throw in the recent market dyspepsia around the Variant Perception report but, to be honest, we were already leading the shakeout before that.
It appears that if the Mining GFC does melt down into a global end-of-cycle event, as MB fears it will, then Australian debt will be at its forefront.