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.

9

Genworth chucks more money out the door

Genworth today released its full year 2015 accounts and chucked more money at shareholders: It’s been hosing shareholders with money when APRA should be raising its counter-cyclical buffers: Why? Because its delinquencies are currently at bottom of the cycle lows: But it has insurance in force of $320 billion: And a regulatory capital position of just $3.6

13

CLSA: Foreign funds selling OZ banks

From pretty much the best in the business, Brian Johnson at CLSA: The four-year rally in Australian banking stocks had been fuelled by near-relentless buying from structurally underweight international institutions chasing dividends as funds have flowed into international income funds.  Recently however, China contagion risk, weaker equity markets, rising bank funding costs, incremental data points

4

Deutsche: NAB gunna cut dividend

From Deutsche: With NAB to trade ex CYBG on Wednesday, we have updated our forecasts to reflect the loss of earnings and impacts on capital and returns. Ex the UK business, NAB’s outlook looks challenging to us (highlighted by margin pressure in the Business Bank), which is reflected in the subdued 4yr forecast EPS CAGR

29

Term deposit rates rise as funding squeeze bites banks

From Banking Day: After cutting their deposit rates for most of last year, some banks have started to increase their rates. Comparison site Mozo found that the number of term deposit rate increases outnumbered falls in January. Greater Building Society, Maitland Mutual, ING Direct, ME and Big Sky all increased rates last month. ME bumped

15

Banks tighten on SMSF property loans

From BS: AMP Bank advised mortgage brokers it would no longer lend for properties less than six months old, including off-the-plan developments. It also lowered its maximum loan-to-valuation ratio from 80 to 70 per cent, and stipulated a minimum SMSF fund size of $200,000 for DIY superannuation borrowers. …These stricter loan conditions come after NAB

42

Moody’s warns on bank costs, bad loans

A double warning today for Australia’s banks from Moody’s: Moody’s Investors Service says that the unwinding of the global commodities cycle is heightening the macroeconomic risks faced by Australian banks, as the regions and sectors most exposed to mining are starting to see some signs of stress. “Although the banks’ direct exposure to the resources sector is relatively low,

63

What idiot said macroprudential wouldn’t work?

Glenn Stevens for one. Yet today’s credit data slaps him square across the face. APRA’s December bank breakdown has investor loans stalling out completely in annual growth rates: ANZ CBA MAC NAB SUN WBC Dec-15 5.0 4.2 40.6 53.7 -2.5 -7.2 Nov-15 6.0 4.9 45.5 55.1 0.5 -6.4 Oct-15 7.1 6.1 48.5 55.6 5.2 -6.0

3

More on the bank dividend Sykesnado

From Bloomie: Some of the world’s fattest bank dividends are at risk as Australia’s four dominant banks, which together raised a record amount of equity capital last year, come under pressure to add more amid a potential rise in bad debts. …“There’s certainly more capital raisings to come from the banks this year,” Sean Fenton,

16

The fuse is lit under bank funding costs in 2016

From Banking Day: Spreads agreed on newly minted wholesale bank debt from Australian names priced at much wider levels than prevailed in 2015. Philip Bayley, in his weekly DCM Review, chronicled the vibrant start to the fixed income market over the opening weeks of January 2016. Commonwealth Bank raised A$2 billion for five years at

12

Why you shouldn’t expect much interest rate relief

By Leith van Onselen The SMH reported yesterday that funding costs are rising for Australia’s banks, which could preclude them from passing on any cuts to official interest rates by the RBA: While the ructions in world financial markets are increasing the odds of a central bank interest-rate reduction, they’re also pushing up the price

17

Fitch deluded on Aussie banks, economy

By Leith van Onselen Fitch has released its 2016 outlook for the Australian banks, which maintains a stable outlook for the sector. Below are extracts from the press release [my emphasis]: Fitch Ratings maintains a Stable sector outlook on Australia’s banking sector in 2016. We expect strengthened capitalisation and recently tightened underwriting standards to offset

129

How do banks create money?

Cross-posted from Science Direct: (h/t to Delusional Economics for bringing this important work to our attention) 1. Introduction Thanks to the recent banking crises interest has grown in the details of how banks operate. In recent decades, the empirical and institutional micro-structure of how banks operate had not been a primary focus of attention by

10

CBA appears oblivious to risk

CBA chief economist Michael Blythe is out at BS today with his list of risks for 2016: 1. A new Chinese investor? China runs a current account surplus. That surplus is put at around 3 per cent of GDP in 2016 and has averaged 4.6 per cent of GDP over the past decade. That surplus needs

39

Don’t be tempted by bank stocks

Its time. Time to buy banks. Resistance is futile! Your portfolio shall be one with Megabank! As the bullish research reports come through from the local institutions, as seen here from Credit Suisse and here from Deutsche Bank yesterday, and prices fall to 2014 lows, the bargain hunters are back! The banking sector has had

2

Credit Suisse: still overweight banks

Credit Suisse are out this morning with the mainstream view on the banking sector, remaining overweight (read: nothing else worth investing in) going into this year. The main reasons: Regulatory capital rules are now clearer (acknowledging Basel IV to come), “jumbo” capital raisings are complete (for now) and Multiples are if not attractive (relative and

2

Joye: Banks will need more capital yet

From Chris Joye: While APRA’s decision to set the CCCB at 0 per cent might seem generous in light of Australia’s record house price-to-income and housing debt-to-income ratios, its macro-prudential constraints have cooled conditions. It also likely expects that the publication of the Basel 3 capital standards in the first quarter of 2016 will compel

20

Time for the RBA to cut the CLF

By Leith van Onselen The ABC reported yesterday that the Federal Government has issued extra $14 billion in bonds to pay for the ballooning deficit, with more to come as the Budget deficit inexorably grows: The Federal Government has boosted its issuance of Commonwealth bonds by almost 20 per cent to $86 billion this financial

20

Inside the banks’ offshore borrowing binge

By Leith van Onselen The release of the Australian Bureau of Statistics (ABS) National Financial Accounts yesterday revealed a large $53 billion (7%) jump in Australian banks’ gross external liabilities (offshore borrowings) in the September quarter, with borrowings now at all time record levels. This surge in offshore borrowings was driven by a giant increase

6

Captured APRA squibs counter-cyclical capital

From Martin North: APRA has today announced that the countercyclical capital buffer applying to the Australian exposures of authorised deposit-taking institutions (ADIs) from 1 January 2016 will be set at zero per cent. The countercyclical buffer was included within the ADI capital framework as part of the Basel III reforms that were introduced by APRA

8

Bank funding costs warm up again

As expected, as the Mining GFC has intensified in this past week we have again seen Australian bank funding costs begin to rise. After yesterday’s US and emerging market high yield bond sell off the CBA CDS price (which is a good proxy for underlying five year bank bond rates) jumped 3.9% to 87.6bps and is in