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.
From Morgan Stanley: Our Chart of the Week shows that mortgage risk weightings (RW) under the internal ratings-based (IRB) methodology have risen for CBA and WBC by ~0.9ppt and ~1.7ppt, respectively. WBC noted a 21bp reduction in the CET1 ratio due to: “Changes to the determination of probability of default”. In our view, mortgage RWs
From The Australian: Speaking to a Senate committee in Canberra last night, [Wayne Byers] said most banks were already compliant with guidelines on investor lending growth and borrowing serviceability tests, so credit growth would unlikely be impacted. While the guidelines were not “hard limits”, Mr Byres signalled APRA’s “targeted” review would not hold back against specific
From The Australian: QBE insurance has put a planned float of its Lenders Mortgage Insurance on hold saying the proceeds are not needed following a major capital overhaul at the international insurer. QBE managed a $1bn profit turnaround in the year to December 31, reporting a $742m net profit following a year of restructuring, asset
Cross-posted from Martin North’s DFA blog. The ABS today released the data for Australian Securitisers to December 2014. We see two interesting points, first the value of mortgages being securitised has risen (up 4.8%), and second, a greater share are being purchased by Australian investors (all but 7.2%). We discussed recently the rise on securitisation,
From Banking Day: The National Australia Bank’s contract with Genworth Australia to provide lenders mortgage insurance for the bank’s Homeside Lending division is up for review in September 2015. However, the option of following Westpac’s lead and moving all or part of its business away from Genworth must now have moved higher up NAB’s list.
From Banking Day A vibrant flow of premium income over high risk home loans is being farmed out by Westpac to the international reinsurance market. Westpac has kicked Genworth, and maybe also QBE, off its reinsurance panel with others moving to fill the void. Banking analysts and CLSA said Westpac would “effect a capital arbitrage
Not sure what’s going on here: Genworth Mortgage Insurance Australia Ltd said Westpac Banking Corp, the country’s second-biggest lender, has cancelled a sales agreement after a review of its riskier loans, a move that will hit the insurer’s 2016 earnings. …Genworth, one of Australia’s most valuable stock listings of 2014 and now worth A$2.8 billion
Citi asks the question today: Bubbling along? — The question has come up a couple of times in the past few years, no doubt raised by the six years of outperformance of the broader market the banks have now enjoyed. This has left them accounting for a third or more of the market’s capitalization, in
From Banking Day: Macquarie Group expects its runaway mortgage business to “normalise” over the next couple of years, as its growth rate moderates and it starts to produce a higher return on equity. Speaking at an operational briefing yesterday, Macquarie’s group head of banking and financial services, Greg Ward, said the mortgage market was very
From News.com.au: MULTIPLE lenders have eased requirements on borrowers’ deposit sizes making it easier to buy a home… New data from comparison website Finder.com.au shows lenders including Homeloans, HSBC, loans.com.au, Macquarie Bank, RAMS and Westpac have moved their LVRs on some mortgage products, relaxing the size of the deposit needed to secure a loan… Finder.com.au
By Martin North, cross-posted from the Digital Finance Analytics blog: Prior to the 2007 Financial Crisis, securitisation was seen as a tool to support economic growth and financial stability by enabling issuers and investors to diversify and manage risk. By transforming a pool of illiquid assets into tradable securities, securitisation frees up bank capital, allowing
From the AFR comes a little butterfly flapping its wings: A $US90 billion funding line for Australian banks in the United States is beginning to close due to tough new financial crisis-inspired regulations, forcing local lenders to hunt for short-term money in more expensive funding markets. The biggest US prime money market fund operator, Fidelity Investments,
Here’s an absolute beauty from The Age: Here are 11 reasons fund managers have given us about why they see more upside in bank shares: 1. Short term earnings are improving 2. Robust housing market 3. Moderate top line growth 4. Opportunities for cost cut 5. Earnings pressure in other sectors 6. Interest rates are low
From The Australian: CBA (CBA) reported a good 1H15 result with strong momentum in underlying profit, says Watermark Funds Management investment analyst Omkar Joshi. Cash earnings were 8% higher for the half and 1% ahead of consensus expectations, the net interest margin fell 2 basis points to 2.12%, but was 1 basis point above consensus estimates,
From the SMH: All banks and lenders will be visited by the Australian Prudential Regulation Authority (APRA) in the first three months of 2015, and if risky practices are identified, they face increased scrutiny. …”This is a measured and targeted response to emerging pressures in the housing market,” he said. “These steps represent a dialling
Just in from Fitch Ratings: Fitch Ratings says that the Reserve Bank of Australia’s move on 3 February 2015 to cut its official interest rate to 2.25% down from 2.50%, which led to mortgage rates in Australia falling to their lowest point in 50 years, is unlikely to improve the performance of domestic residential mortgage
From the SMH: Shares in the country’s biggest lender are running red hot, with new research showing that CBA is trading at a dramatic premium to its Big Four competitors ANZ, NAB and Westpac. CBA stock is valued 23 per cent higher than its peers based on forward P/E multiples, well above a historical premium
By Martin North, cross-posted from the Digital Finance Analytics Blog APRA just released their monthly banking statistics, which provides a view of lending and deposit portfolios from the banks (ADI’s). Overall home lending by the banks rose $9.12 billion to $1.315 trillion. Owner Occupied loans grew by 0.59% and Investment Loans by 0.9%, with Owner
A solid fall in CBA CDS today from a recent high of 76.5bps to 68.5: It will be interesting to see how far it falls as Eurozone risk comes off the table, especially after Greece votes. Whatever is left is Australia’s own deteriorating situation.
UBS is looking for another leg up in bank valuations today: A benign outlook is not a bad thing With a patchy economy and a pick-up in market volatility, we believe many investors are struggling for high conviction investment alternatives. With many industries under pressure, high quality franchises which offer reasonable growth have become crowded trades with stretched
From Banking Day: Credit spreads for the banks moved wider over the second half of 2014, and continue to do so.For example, in August National Australia Bank raised A$1.7 billion for 5.25 years at a credit spread of 82 basis points over the bank bill swap rate, in the domestic market. In November, ANZ paid 85 bps over swaps for A$2.0
by Martin North at Digital Finance Analytics Fitch Ratings 2015 Outlook: Australian Banks report has a stable sector outlook for Australian banks in 2015, reflecting what should be a relatively steady operating environment despite a likely modest decline in real GDP growth and an elevated unemployment rate. These factors should in turn result in modestly weaker asset
By Martin North, cross-posted from the Digital Finance Analytics Blog: A series of separate but connected events will see capital requirements of banks continue to steadily increase from 2015 onwards. You can read about the capital issues in the earlier post. This is consistent with the outcomes from the G20. The international environment is driving capital requirements
From Morgan Stanley: The Financial System Inquiry has recommended a “baseline target in the top quartile of internationally active banks” so that Australian bank capital ratios are “unquestionably strong”. It concluded that the major banks’ ratios are currently above the global median, but below the top quartile, implying a Basel CET1 ratio of ~11.4%. This
From Deutsche: APRA’s new mortgage standards focused on quality, not quantity of lending In its letter to the banks, APRA indicated that it will increase the level of supervisory oversight on mortgages given recent developments in the housing and mortgage markets. That said it does not propose to introduce across the board increases in capital requirements or caps on
From Fitch: The recommendations contained in the final report of Australia’s Financial System Inquiry, published 7 December 2014, should improve the resilience of the banking system to shocks, although the implicit government support for the system is likely to decline, says Fitch Ratings. Immediate rating action is unlikely despite the changes. Increased capital requirements, a
From Callam Pickering: The one glaring problem with the Financial System Inquiry is that it didn’t push hard for the introduction of macroprudential policies. That takes the heat off both the RBA and APRA. The truth is that higher capital requirements — combined with higher risk weighting on mortgages and tax reform — would have
From Yahoo: Prime Minister Tony Abbott has welcomed the “useful” recommendations from the independent Murray review handed down at the weekend but won’t jump to any conclusions. “We’re not going to rush something out before Christmas,” he told ABC radio. “We’re going to carefully digest the report. We will follow the community debate, we’ll take
From Deutsche: We estimate that the FSI report is likely to see the major banks need $16bn – $23bn of CET1 over the next 3-5yrs with organic capital generation and DRP’s (at ~20% participation) more than sufficient to meet the capital increase. From an ROE perspective this can be offset through a ~14-18bps of asset
By Leith van Onselen The much anticipated 350-page Final Report of the Financial System Inquiry (FSI), chaired by ex-CBA chief, David Murray, was released to the public on Sunday, and did not disappoint, recommending 44 reforms to the Australian financial system based on evidence received by the Inquiry. The Final Report explains in great detail
