UBS: Aussie banks still un-investable

Via the always excellent Jonathon Mott at UBS today:

(1) ‘Underlying’ revenue fell -1.3% (h/h); (2) NIM was down 7bp to 199bp; (3) Average Interest Earning assets grew just 1.4% as the banks further tightened underwriting and continued to run off low yielding institutional assets; (4) Fee income and markets revenue were weaker; (5) ‘Underlying’ costs rose 1.9% (h/h) given ongoing investment, compliance and regulatory spend, which more than offset productivity savings; (6) This left ‘Underlying’ Pre-Provision Profits down 3.6% (h/h); (7) Credit impairment charges fell to just 11bp – the lowest ever recorded.

Book pricing is cheap but no good if the assets are dodgy and the forward P/E is still only average:

Yet to be discounted, profit growthless banks with massive payout ratios for huge dividends on record low provisions entering a housing adjustment, regulatory crunch and legal imbroglio.

Now that’s a short!


  1. So far just minor niggles for the banks.

    The bigger problems start when Sydney house prices drop below 2014 levels (about 145 on the CoreLogic) and many find themselves underwater. Then the class actions, accompanied by jingle mail, may start to pick up, along with defaults and provisions.

  2. … AUSTRALIA: The bursting housing bubble … continued …

    CSR, Boral, James Hardie caught in housing blues | … behind paywall …

    The heavy sell-off in shares in Australia’s big building products companies is a pointer to where investors think the housing market is headed.

    CSR shares have tumbled 43 per cent in the past six months, Boral is off 21 per cent since the start of October and James Hardie has dropped 27 per cent in the past three months. In CSR’s case, $1.2 billion in sharemarket value has vanished since May, leaving shareholders wincing. … read more via hyperlink above (behind paywall) …
    Plunging mortgage lending levels in Australia mean ‘further weakness in house prices is likely’ | Business Insider
    UBS: Aussie banks still un-investable – MacroBusiness Australia

    • … It’s a very rough road to below a 3.0 Median Multiple … as the Irish learned (the hard way) following the ’07 event … when the average Median Multiple across its major metros went from 4.7 to 2.8 …

      Demographia International Housing Affordability Survey: All Editions
      … and as I explained early 2010 … in quoting Michael Lewis, author of Liars Poker … within …

      Housing Bubbles And Market Sense | Hugh Pavletich | Scoop New Zealand News

      … extract …

      … Michael Lewis, author of Liars Poker wrote recently within a Portfolio com article The End of Wall Streets Boom – most within the finance and investment sector, appeared to be oblivious to the existence of housing bubbles and even less aware of their consequences. As Michael Lewis explains – during late 2004 – only a few, such as Steve Eisman, Ivy Zelman and Meredith Whitney understood that the core problems were the inflating housing bubbles –

      “At the end of 2004, Eisman, Moses and Daniel shared a sense that unhealthy things were going on in the housing market.

      Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1% was a travesty that would lead to some terrible day of reckoning.

      Neither of these insights was entirely original.

      Ivy Zelman, at the time the housing market analysis at Credit Suisse, had seen the bubble forming very early on. There is a simple measure of sanity in housing prices, the ratio of median house price to income.

      Historically, it runs around 3 to 1, by late 2004, it had risen nationally to 4 to 1.’

      All these people were saying it was nearly as high as some other countries’ Zelman says ‘ But the problem wasn’t just that it was 4 to 1.

      In Los Angeles it was 10 to 1 and in Miami it was 8.5 to 1.

      And then you coupled that with the buyers. They weren’t real buyers. They were speculators’.

      Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. ‘It wasn’t that hard in hindsight to see it’ she says ‘It was very hard to know when it would stop’.

      Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. ‘You needed the occasional assurance that you weren’t nuts’ she says.

      She wasn’t nuts. The world was.”
      … and explaining a few ‘home truths’ recently to Kiwis as well … with a leading New Zealand journalist Catherine Harris …

      Falling Australian house prices a warning for NZ: commentator | Catherine Harris |

      … Why do people … and their (supposed to be in a representative democracy … poll parrots) politicians … have to learn the hard way ?