Australian banks

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.

10

UBS: Credit crunch begins

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

5

Every excuse under the sun for bank funding spike

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

20

Moody’s: House prices set to rebound

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

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Morgan Stanley: Mortgage sizes face big cuts on macroprudential 3.0

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

16

Time for David Murray to put a sock in it

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

12

UBS: Mortgage debt-to-income limits to intensify credit crunch

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

4

More on rising mortgage arrears

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

33

New warnings for Bank of Mum and Dad

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

37

Rate cuts loom as bank bear market panic sweeps MSM

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

36

Is Australia headed for a financial crisis?

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

36

Citi panics first, hikes mortgage rates

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

9

S&P kicks Australia out of “very low risk” sovereign club

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

66

Credit Suisse: RBA has lost control, banks must hike mortgage rates

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

44

Bankwest debacle shines light on APRA’s “appalling” regulatory oversight

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

46

Mortgage stress highest in eighteen years

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,

13

Financial Times demands Aussie bank break-up

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

24

CBA’s historic $700m penalty sets new quantum for enforcement cases

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

14

Mortgage Choice “inflated loans, committed fraud”

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

16

Crime pays for the CBA

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

39

CBA to pay $700m for anti-money laundering breaches

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

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Mortgage rejections soar to 40% of applications as LTI capped

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

4

Snap! Banks break

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