By Leith van Onselen The Drum’s editor, Ian Verrender, has produced a great article slamming the banks’ vocal opposition to stricter capital rules and debunking the claim that Australia’s banked were not bailed-out during the GFC: Within days [of Lehman Brothers’ collapse], the government shored up offshore Australian bank debt with a taxpayer guarantee… And
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: We are more concerned about the outlook for the major Australian banks because we think the EPS upgrade cycle is coming to an end and investors are under-estimating the downside risk to ROEs from the Murray Inquiry. Against this backdrop, elevated trading multiples are hard to justify. The EPS upgrade cycle is
Fitch is out with a new report on Australian banks and does the delicate dance of the conflicted ratings agency, pointing to skyrocketing risk while playing it down: Slower Housing Credit Growth: Fitch Ratings expects a slowing of housing credit growth and, potentially, a stabilisation in household debt levels as wage increases ease and unemployment
By Leith van Onselen Macquarie Bank chief, Nicholas Moore, has today urged both the public and private sectors to take advantage of the most favourable debt funding conditions in years to invest in growth-enhancing infrastructure. From The Australian: The comments ramp up a push from business for infrastructure investment to spur the sluggish economy and
The new NAB CEO is pursuing the tried and trusted blame your predecessor strategy announcing a profit downgrade today. From BS: National Australia Bank has warned its full-year cash profit will take a hit of up to 14 per cent on further provisions related to its UK operations and an impairment on capitalised software in
by Chris Becker UBS is out with a research note today that spells all will be fine with Megabank, the four bank oligopoly, post the Murray Financial Inquiry (FSI), which is considering a raft of measures to actually put some lead in the thin line called banking stability. UBS contends that any such additional costs
By Chris Becker The local share market has been pummelled again this morning, down 1.5% and all led by the financials index. The selling may be off on the back of Treasurer Joe Hockey’s comments on the Budget hit, weakening the guarantees and dollar, or on the RBA’s consideration of macroprudential tools: After a break spike
By Leith van Onselen The Big Four banks have launched a last minute plea to try and persuade the Murray Financial System Inquiry not to raise capital requirements, claiming that they are already well capitalised. From The Australian: …the banks are sweating after the interim report labelled their capital strength “middle of the pack” globally
By Leith van Onselen Reserve Bank of Australia (RBA) officials appeared before the Senate Committee on affordable housing yesterday and signaled that APRA would likely introduce macro-prudential measures to curb high risk mortgage lending by the end of this year. From The Canberra Times: “I expect there will be … an announcement before the end
by Chris Becker Morgan Stanley has a research note out today suggesting the big four banks will face quiet onerous capital requirements following the Murray Inquiry and have moved “underweight” With the banks outperforming the market for the past 3.5 years, and now accounting for 30% of the ASX200, we have moved underweight the sector.
By Leith van Onselen It was only five weeks ago that Reserve Bank of Australia (RBA) governor, Glenn Stevens, labelled macro-prudential controls on high risk mortgage lending as “dreaded” and the “latest fad” in parliamentary testimony. Since that time, the landscape has changed immensely. Not only has investor mortgage demand hit another all time high,
From the AFR, Ex-Goldman chairman Alastair Walton: …argued that the banking oligopoly allowed the major lenders to focus on home lending and neglect financing innovative businesses critical for future prosperity. …“Would Australia as a whole be better off with eight to ten banks, each . . . rated A (like almost every other bank in the OECD)
By Martin North, cross-posted from the Digital Finance Analytics Blog In an important speech given today by Wayne Byres, Chairman of APRA, “Perspectives on the Global Regulatory Agenda”, there are some important pointers which indicate to me that we should expect some changes to the capital regulatory framework quite soon. We highlighted the capital questions
The sell side is piling into the banks now. From Morgan Stanley: We believe the Murray Inquiry will lead to more onerous capital requirements for the major Australian banks, and our revised forecasts assume a 2% D-SIB buffer (vs 1% currently) and an increase in mortgage risk weightings (via a 20% RW floor). This implies
From the AFR: Australia’s major banks could be hit with a ratings downgrade and find it more expensive to borrow money in overseas markets if their bond-holders are forced to incur losses in the event of bank failures, according to Fabienne Michaux, head of Standard & Poor’s Ratings Services Australia and New Zealand. “One of
For those of you that don’t know, Sheila Bair is the former Chairperson of the U.S. Federal Deposit Insurance Corporation (FDIC) and something of a hero of the GFC given her FDIC never bought into the new age drivel of Greenspan & Co about derivatives mitigating bank risk. She has some good advice for Australia today.
Moody’s has a nice description of the re-inflating Australian housing bubble today: Australian Banks Resilient to Housing Stress, But Tail Risks Are Rising Concerns Over Sustainability as Australian House Prices Rise. Residential house prices have been rising rapidly in recent quarters, increasing by close to 14% since May 2013 (Exhibit J in the Appendix). The recent
The great flaw in Australia’s economic model has Moody’s exercised today: Data from the Australian Prudential Regulation Authority (APRA) highlights the trend that bank loans in Australia started to rise faster than deposits during 1H2014. As a result, banks could be pressured to increase their use of wholesale funding, a development which we would view
From Moody’s Credit Outlook: Last Tuesday, the Australian Prudential Regulation Authority (APRA) released its latest statistics on Australian authorized deposit-taking institutions’ (ADIs) exposure to residential property, which showed an increase in the proportion of higher-risk loans underwritten by Australian banks, including investment loans, interest-only (IO) loans and loans written outside normal serviceability criteria. The increase
The Deep T. critique of bank capital ratios has exploded today at the AFR via Chris Joye: One of the first charts APRA published this week was the amount of “common equity tier one capital” held by deposit-takers as a share of “risk-weighted” assets. This is similar to the first-loss equity home owners have invested
By Leith van Onselen The Reserve Bank of Australia (RBA) has provided its second submission to the Murray Financial System Inquiry (FSI), which reportedly warns against moves to bolster competition in the mortgage market for fear that it would pump even more funds into property and heighten financial system risks. From Business Spectator: “The supply
From the AFR: Global rules forcing smaller banks to hold twice as much capital against mortgage lending as the big four is distorting home loan competition, The Australian Bankers Association has said. In its second submission to the Murray inquiry, the ABA argues the Australian Prudential Regulation Authority should recognise efforts by regional banks to
Wow. The banks are spooked. At the AFR, the economists of the big four banks have come together in a single voice: Australia’s four leading bank economists have a blunt message for Canberra: pass the budget or risk destroying already fragile consumer confidence. On the day Parliament resumed, with Treasurer Joe Hockey’s federal budget still up in
Here’s an interesting video from the Centre for International Finance and Regulation starring John Howard and canvassing three decades of financial system reform. Sadly it degenerates into a rambling self-endorsement that leaves one no more elucidated than prior to viewing. Still, I suppose that tells you something!
From the AFR: “The post-crisis monetary settings have distorted asset prices again,” he said in a speech in Sydney on Thursday. “That is going to cause a correction at some point, which will put more political pressure on financial systems.” …Mr Murray suggested in his interim report last month the banks might need to hold higher levels
The kool aid is flowing today in Pyrmont: A new paper by the International Monetary Fund is likely to raise further doubts that Australia should impose stricter debt limits on banks and borrowers, because such tools have been found to be ineffective in preventing a crash in asset prices. And here’s what the actual paper
From Moody’s today: Moody’s Investors Service has today affirmedthe A2 insurance financial strength rating of QBE Lenders’ Mortgage Insurance Limited (QBE LMI). At the same time, Moody’s has changed the rating outlook to negative from stable.The rating action follows the announcement by QBE LMI’s parent, QBE Insurance Group Limited (QBE, Baa2 senior unsecured rating) on 19 August 2014
The Pascometer has an interesting observation today: With QBE making issues and selling off bits and pieces to raise capital, someone more eagle-eyed than most spotted a sentence in the company’s results announcement that raises a question about whether a quiet little word has been had with the global insurance company. …”When executed, these initiatives
I’m afraid the writing is on the wall now for the great Australian mortgage bubble. When nobody wants to be in the lenders mortgage insurance business you know something is up. After the recent float of Genworth’s (GMA) formerly stellar LMI business, QBE has announced a partial float of its own LMI: QBE Insurance Group has