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.

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One last yield party for Megabank?

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

9

Australian bank credit spreads widen sharply

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

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Bank profits under pressure in 2015

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

11

The bank capital conundrum

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

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How much capital did you say the banks need?

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

17

Deutsche: APRA’s Clayton’s macroprudential

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

13

Rating agencies mull stripped bank guarantee

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

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Abbott hoses swift action on Murray

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

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Deutsche: Banks to need $23 billion

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

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Murray Inquiry a win for financial stability

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

14

Australia: Haven for bank control frauds?

By Paul Egan & Philip Soos – Co-Author’s ‘Bubble Economics: Australian Land Speculation 1830 – 2013’   Exuberant household credit growth over the last twenty years has a sinister dimension: the likelihood of widespread predatory lending and bank fraud. Every developed country, including Australia, has laws to regulate and hopefully prevent predatory lending, defined as providing credit

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The banks’ real capital levels are falling

By Martin North, cross-posted from the Digital Finance Analytics Blog: APRA yesterday published the quarterly ADI performance statistics to September 2014. Over the year ending 30 September 2014, ADIs recorded net profit after tax of $33.5 billion. This is an increase of $3.6 billion (12.0 per cent) on the year ending 30 September 2013. As

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Deposit growth marches on

APRA released its monthly banking statistics for October today and deposit growth marches on despite a bad month: Dragging down year on year growth as well: But there’s not appreciable difference in the categories: No real change.

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Murray review a boon for smaller banks?

By Leith van Onselen The head of Suncorp, Patrick Snowball, has claimed that the recommendations of the Murray Financial System Inquiry are likely to make it much easier for smaller authorised deposit-taking instritutions (ADIs) to compete against the Big Four banks. From The Australian: “The inquiry has fuelled a robust level of discussion and debate

67

Risk on, as interest only mortgages hit record

By Leith van Onselen APRA just released their quarterly data on housing exposures, which captures Authorised Deposit-Taking Institutions (ADIs) loans to the housing sector for the September quarter of 2014. According to APRA, ADIs’ total domestic housing loans were $1.3 trillion, an increase of $103.4 billion (9.0%) over the year to September, with the value

8

Fitch: Aussie banks will need to raise capital

By Leith van Onselen Global credit ratings agency, Fitch, has labelled Australia’s big four banks’ capital profiles as “about average” and claimed that they could be forced to increase their capital buffers by up to $53 billion – equivalent to nearly two year’s combined profits – if the Murray financial system inquiry takes aggressive action

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Last stand of a dying economic model

The AFR is reporting that: Australia’s big four banks are tipped to raise $134 billion from wholesale markets this financial year, the most since 2009-10, as lenders use cheaper global funds to fuel domestic competition. …The last time banks raised this much wholesale money was in financial 2010, when the government was guaranteeing bank borrowings

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Aussie banks ill-prepared for property crash

By Leith van Onselen Australia’s big four banks are ill-prepared for a housing crisis, according to AMP Capital’s head of credit markets, Jeff Brunton, who claims that official stress tests failed to account for the impact on mortgages that did not default. He takes up the argument pioneered at MB by Deep T, from The Canberra

21

The bank capital mirage

By Leith van Onselen The AFR’s Chris Joye has been on fire recently, systematically tearing apart the myth that Australia’s banks are “well-capitalised” and “safe”. In today’s AFR column, Joye has taken on APRA’s new boss, Wayne Byres, and showed that in contrast to APRA’s claims that an increase in the home loan share of

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So you think our banks are “safe”?

By Leith van Onselen The AFR’s Chris Joye has continued his crusade against the Big Four banks flimsy capital buffers, revealing over the weekend that Australia’s four major banks had all the capital assigned to their $1.25 trillion home loan books completely wiped out in APRA’s recent stress-tests. According to Joye’s weekend report, the majors

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The banker that embraced macroprudential

This is not the first time I’ve praised Bendigo and Adelaide Bank chief Mike Hirst. From the AFR: “The global economy is just limping along and the G20 [leaders summit] is addressing that. Because we’re in that situation, however, a few countries have taken a new approach through quantitative easing, for example,” Mr Hirst said. “Given

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S&P downgrades Genworth

From S&P: Genworth Financial Mortgage Insurance Pty Ltd. Ratings Lowered; Outlook Negative Overview · S&P has lowered the financial strength ratings on Genworth Life Insurance Co., Genworth Life and Annuity Insurance Co. and Genworth Life Insurance Co. of New York to ‘BBB+’ from ‘A-‘. · As a result, the financial strength ratings on Genworth Financial Mortgage Insurance

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Australia’s perverse RMBS renaissance

The RBA Chris Aylmer delivered a speech today on the recovering RMBS market. It is worth  a look: Introduction Thank you for giving me the opportunity to speak here today. My remarks are in two parts. The first part scans recent developments in the securitisation market. In the second part, I will discuss the role of

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A leash is being thrown over the Australian mortgage monster

This post is long but you must read it. The Australian economy faces a potential decades long turning point on events that transpired late Friday. The following speech was delivered by Chairman Australian Prudential Regulation Authority Wayne Byers. Good afternoon. Let me start by posing a question: are Australian banks adequately capitalised? That’s a pretty

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APRA skeptical after bank stress tests

This is better, from the AFR, comes Wayne Byers, chairman of APRA: “If we draw one conclusion from the stress test this year, it’s that there remains more to do to be able to confidently deliver strength in adversity,” he said. With surging house prices in Sydney and Melbourne… Mr Byres said the low risk