MacroBusiness covers Australian banks from the perspective of their macro-economic role, as political economy actors, as investment propositions and in terms of financial stability and capital adequacy. Australian banks have played a crucial role in inflating the Australian property bubble, exist within an utterly privileged position as “too big to fail” institutions and operate within a deeply distorted financial architecture that has Australian tax payers well and truly on the hook in the event of trouble. MacroBusiness seeks to define this role for investors as well as change it in the name of the Australian national interest.
Via UBS today: Major Bank investment loan approvals fall sharply. The release of APRA’s March quarter property statistics confirmed that bank lending had already begun to slow in 1Q18, even before the Royal Commission hearings commenced (13th March). In 1Q18 the Major Banks’ mortgage approvals fell 4.2%, driven by a 16% y/y fall in investment
Except the right one. BBSW is at new highs with the bank profits pincer tightening and the AFR is desperate for an excuse: “There’s nothing to suggest that it’s sinister just yet, we expect these things to be high as we get to quarter-end as the historical pattern shows,” said Tamar Hamlyn, portfolio manager at fixed
Via the AFR: The ASX hits a 10-year high in the middle of a ramping trade war between the United States and our most important trading partner, China. That’s not exactly the circumstances under which you’d expect investors to be plunging into Aussie shares. …there are a number of ways Australia could be a winner
Meh: Home Values Across Australia Will Continue To Diverge Into 2019, Based On The CoreLogic-Moody’s Analytics Australian Home Value Index Forecast Moody’s Analytics has developed an econometric model to forecast the direction of Australia’s residential property market down to the Statistical Area 4 level, using historical data from CoreLogic’s Hedonic Home Value Index. SA4s are geographic
Via Morgan Stanley on macroprudential 3.0: An estimated 18 per cent of mortgage customers have a debt-to-income (DTI) ratio that is above six times, an analysis of 1836 mortgagors shows, which is unacceptable when seen through the lens of new lending rules. A correction of the “very high” debt-to-income segment of the mortgage market could
Nice work from Martin North today: There is a chart doing the rounds courtesy for the CEC (an Australian Political Party, who is advocating the introduction of a Glass Steagall banking separation bill, and which is likely to tabled late June) which shows that the total value of financial derivatives in Australia is around $37 trillion dollars.
Via the AFR: The chairman of the government’s financial system inquiry David Murray is warning the banking royal commissioner Kenneth Hayne to avoid loading new laws onto lenders and advisers as this may push customers into unregulated shadow banks, make it tougher for older Australians to get financial advice, and curtail competition. In a speech
The bear market in the banks is well and truly intact: But one would be remiss to not note the fantastic strength that they have shown over the past few days as global market shook around them. What gives? First, the banks were oversold and ripe for a bounce. Second, that rebound can come from
More excellent work from UBS today, this time George Theranou: What is DTI & how does it compare to LTI? In the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry there has been an increased focus on Debt-to-income (DTI) ratios, particularly in relation to responsible lending. DTI differs
Via S&P: Arrears on the mortgages underlying Australian residential mortgage-backed securities (RMBS) increased during the past year, according to S&P Global Ratings’ first-quarter 2018 edition of “RMBS Performance Watch: Australia.” Mortgage arrears continued to rise in resource states, where conditions for mortgage performance have remained more challenging. S&P Global Ratings has updated its arrears data
Via Domainfax: Banks would have to bluntly warn parents planning to guarantee their children’s business debts that they risk losing their home, and that many small businesses end up failing, under proposals to the royal commission. …However, the major banks are resisting further change, arguing current laws and the industry’s revamped code of conduct give
Whoa! Karen Moley at the AFR awakes: Australian banks are being squeezed by higher borrowing costs as the US Federal Reserve accelerates its interest rate hikes and drains liquidity from global financial markets while the Hayne royal commission makes it difficult for them to raise home loan rates. …Analysts estimated that the spreads paid by
Yesterday I attended a Capital Economics event with Paul Dales that addressed this question. The presentation first noted the huge over-valuation of property with Sydney and Melbourne 30% above sustainable trend, as well as the huge household debt imbalance we all know. It also noted the high likelihood of further price falls: In exploring the
The AUD is still falling this morning as, unusually, consumer sentiment has moved the market: Bonds are bid a little: XJO is down: Dalian down at the open: Big Iron likewise: Big Gas too: Big Gold mixed: Big Scum is broken. The CBA price support around $69 is busted. $50 looks a good chart target
Via the AFR: The Australian division of the global financial powerhouse Citibank has hit the brakes on residential property lending amid growing fears about a housing slowdown and its impact on the broader economy. But the policy change follows repeated warnings by the bank about looming slowdown in the residential and commercial markets and its
It’s not yet the sovereign downgrade, but it’s the pre-downgrade downgrade, from S&P: • In the past two years, information has emerged on the Australian banking system that highlights lapses in governance and risk management. As a result, we are revising our previous view on the competitive dynamics and institutional framework of the Australian banking
Prepare for the straw that breaks the camel’s back. Via the excellent Damien Boey of Credit Suisse: The limits of pass through We have just published an article on “The limits of pass through” (attached). It explains why we think the economy is in for a combination of tighter lending standards and out of cycle
You can always tell when the RBA is getting worried about bank funding stress because it begins with the propaganda. After noting the stress in its recent statement for the first time as a factor in the cash rate discussions, today Chistopher Kent aims hose the issue off in a new speech: I’d like to
Out of cycle rate hikes imminent? Via Damien Boey at Credit Suisse: Christmas has come early for the RBA. Real GDP growth is above 3%, earlier than expected, and core CPI inflation is gradually returning back to target. Almost everything that is needed to justify the Bank’s desired path of tightening, is in place. Almost.
By Nathan Lynch, Asia-Pacific bureau chief, financial crime and risk, Thomson Reuters When the HBOS Group collapsed in 2008, UK taxpayers were left to fund a £17 billion bank bail-out. It was a prudential disaster that contributed to the break-up of the FSA. In Australia, meanwhile, the bank’s “appalling lending record” was even worse than
UBS asks the question today: Can Banks Break Their Underperformance Trend? Australian banks have now underperformed the Australian market on a rolling 3 year timeframe and the sectors PE discount to market ex-resources has widened to the most since 2008. Will this underperformance continue, or is their hope for a revival? To answer this question
Cross-posted Martin North: Digital Finance Analytics (DFA) has released the May 2018 mortgage stress and default analysis update. Across Australia, more than 966,000 households are estimated to be now in mortgage stress (last month 963,000). This equates to 30.2% of owner occupied borrowing households. In addition, more than 22,600 of these are in severe stress,
And who can blame it? Via FT Lex: Investors can no longer shrug off the turmoil in Australian banking. The Australian Competition and Consumer Commission has laid criminal cartel charges against ANZ Bank, as well as Citigroup, Deutsche Bank and several senior executives. The “four pillar” system that permitted a lending oligopoly has turned from
By Nathan Lynch, Asia-Pacific bureau chief, financial crime and risk, Thomson Reuters THE Commonwealth Bank’s A$700 million settlement with AUSTRAC over 53,750 anti-money laundering and counter-terrorism financing (AML/CTF) breaches has set a new benchmark for enforcement action in Australia. Regulatory officials and lawyers said the statement of agreed facts, although light on detail in some
With the Gotti foghorn away, Highrise Harry has had to turn to the AFR: “There is nothing wrong with our banks, I promise you,” Mr Triguboff told The Australian Financial Review. “I assure you they make mistakes, so do we all. But there is nothing wrong with them. They are shell shocked and if affects
Via Adele Ferguson, Australia’s last journalist standing: One of the country’s biggest mortgage brokers, Mortgage Choice, is in damage control as it faces an uprising from its franchisees on the back of a business model that is pushing many into financial ruin, depression and cutting corners on arranging loans. A joint media investigation by Fairfax
Via Banking Day: No matter which way you cut the numbers, Commonwealth Bank should count itself extremely lucky with the A$700 million deal it has negotiated with Austrac to settle its chronic non-compliance with Australian anti-money laundering and counter terrorism financing laws. Under the terms of the agreement made public on Monday, CBA acknowledges it
By Leith van Onselen CBA has agreed to a $700 million settlement with Australia’s anti-money laundering regulator, Austrac, after the discovery last year of 53,000 cash deposit breaches. From The Australian: CBA will pay a $700m civil penalty plus the regulator Austrac’s costs of $2.5m, as it admits to breaching anti-money laundering and counter-terrorism financing
Cross-posted from Martin North: The root cause of the [house price] falls is simple; credit is harder to get. Our surveys show that up to 40% of applications for mortgages are now being turned down, compared with just 5% a year ago, as lenders apply more forensic analysis of applications received. For example, CBA is
AUD is stable through the morning: Bonds are mixed: The XJO double-top is more serious again: Big Iron is down: Big Gas is down: Big Gold is down: Big Mortgage has broken support with both CBA and WBC on the wrong side of support in their huge and bearish descending triangle patterns. I’ve used the
