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

As good as it get for CBA?

From the AFR: In the biggest full-year profit for an Australian bank, Commonwealth Bank has delivered a cash profit of $8.68 billion, up 12 per cent, as it grew market share in home and business lending and bad debts remained at very low levels. The result came in a touch above analyst consensus estimates for

0

What to expect from megabank profits

A few snippets from UBS for the bank profits rush in the few days: CBA (Wed, 13th Aug): FY14E NPAT $8,697m +12%, EPS 536.2c +11%, DPS 217c We expect a strong FY14E result from CBA, with solid revenue growth, positivejaws, and continuing low bad debts. Capital will be a key focus of the result, and while

31

Banks race to borrow offshore

From the SMH: Australian banks have relied on wholesale finance to bridge a funding gap for the fourth month in a row, as an expansion in lending continues to outstrip deposit growth. …But as lending increases, deposit growth is failing to keep pace, pushing banks to raise more debt from wholesale markets. During the year

12

Deep T. bank capital critique makes the big time

In case any of you are wondering whether MB is worth supporting, the following little piece from Banking Day should strengthen your resolve. MB’s senior banking blogger, Deep. T., has been criticising Australian banks capital ratios (especially in reference to their international peers) for four years. That analysis is now bearing fruit. From Banking Day

12

APRA’s macroprudential-lite upsets banks

From the AFR: In May, amid concerns lending standards were slipping, APRA published landmark guidelines on how it expected banks to manage and monitor their mortgage risks. But a new submission on behalf of the banking industry has hit back at the plan, saying it will add costs and invites a “tick the box” mentality

0

APRA defends the heart of the ponzi

The AFR is reporting today that Australian Prudential Regulation Authority general manager of policy development Neil Grummitt: …has floated changes to narrow the gap between how much capital major banks and the rest must set aside against home loans…Mr Grummit said APRA remained committed to having capital requirements that were “risk sensitive”. …Sources within one of

7

Fitch, ANZ warn on offshore debt

From ANZ CEO Mike Smith today via the AFR: “It is not just about banks, it is about the real economy – about corporations, business and individuals,” Mr Smith said. “It is one thing for a bank to ­complain about regulation but it is another thing for a corporation to say we are not getting finance

16

A ray of light in the Murray Inquiry

I’m going to do a half pirouette today.  Rodney Maddock, adjunct professor of economics at Monash University and vice-chancellor’s fellow at Victoria University, appears at the AFR today argue that the Murray Inquiry is addressing too-big-to-fail: David Murray’s approach to this appears to be the correct one. When a bank fails it is important that

2

A bank’s take on the Murray Inquiry

Here’s an interesting take on the Murray Inquiry from Macquare Bank: Bail In after Bail Out, Not Before Event The FSI elegantly dismissed competition concerns only to raise the spectre of ‘too big to fail’. The inquiry also appeared to not address the offshore wholesale funding gap (although it may well be addressed in the final report). Overall,

34

Time to nationalise the banks (members)

The conflicted Murray Inquiry is making a mockery of the the Coalition’s claim to better budget and economic management. Here we have one of the bankers principally responsible for the run-up in foreign borrowing in the big four banks that led to their GFC insolvency and off-balance sheet nationalisation running the inquiry into the run-up in foreign borrowing

3

Murray’s big loser is the Australian tax-payer

Here are some of the changes that Chris Joye likes in the Murray Inquiry document (with lot’s of criticism too) A full-frontal assault on the crazy “risk-weighting” system, which allows Australia’s major banks to literally hold less than half the capital (and thus twice the leverage) of their competitors when lending against housing, which is

0

Has Murray hit the banks?

As I noted this morning, a little. Credit Suisse sees what I did, firmer capital charges: We see scope for mortgage risk weight floors to be introduced (negative for the majors, particularly CBA and WBC) but also scope for some small positives for the mortgage businesses of the regionals (e.g. expedited advanced accreditation, government sponsorship of RMBS markets).

14

Conflicted Murray Inquiry delivers the fix

The conflicted Murray Inquiry has delivered its preliminary report and it asks some useful questions but misses the really big ones and is already framing the answers in a deeply and disturbingly biased fashion. Below I’ve excerpted the three sections that cover the financial system with commentary. Competition and contestability Competition is the cornerstone of a

6

Murray Inquiry sends CBA scandal to file thirteen

Last week the senate inquiry into the ASIC and CBA planners scandal called for a royal commission to fully air the dirty dealings, apparent cover-ups and regulatory failings. Both Finance Minister Mathias Cormman and Treasurer Joe Hockey declared that no such inquiry was necessary because we already have a banking inquiry underway. Well, today, that

33

CBA invokes the old “rogue trader” trick

From Adele Ferguson at the SMH today: Former Commonwealth Bank chief executive Ralph Norris’ attempt to dismiss the bank’s financial planning scandal as nothing more than a few “rogue people” is public relations trick 101. …For instance it doesn’t explain why those so-called rogue planners, including Don Nguyen, were rewarded and promoted. Nor does it

1

Australia’s big banks receive too much support

By Leith van Onselen The Australian Centre for Financial Studies (ACFS) has released a new report, which argues that the Australian banking sector receives excessive taxpayer support, stunting the development of alternative funding channels, such as the bond market and securitisation. The report analyses the supply of finance to the Australian business sector and is

11

“Inconvenienced” Murray Inquiry to strip regulation?

You’ll be reassured to know that: SENIOR bankers are coming to the view that the David Murray-chaired financial system inquiry will set aside submissions from key regulators and push for a simplified regulatory structure in its final report, due in November. …While careful not to give too much away, the chairman, according to sources, has

43

Fast and Luci with the truth

Luci Ellis, RBA’s Head of the Financial Stability Department gave a speech last Friday, Reforming and Financing the Post Crisis Future . The hairs on the back of my neck picked up when I read the following: APRA set the local rules to require banks using their own models to hold more capital against housing mortgages

17

It’s not just a CBA governance debacle

As the call for CBA Royal Commission continues to resonate, one article today sums up how badly the bank has handled its planning scandal. Business Spectator’s Stephen Bartholomeusz has rarely seen a corporate play that he did not like but today even he can’t resist putting the boot in: CBA has mishandled the controversies that

7

Auditing John Laker’s APRA

Today is the last day in the job for the chairman the Australian Prudential Authority (APRA), John Laker. As chairman for 11 years, Laker oversaw the rebuilding of APRA after Peter Costello gutted it following the HIH Insurance collapse in 2001. John Laker’s tenure at APRA is widely regarded as a success and prima facie

17

What hope of a CBA Royal Commission?

What a day. The senate is calling for a Royal Commission into the Commonwealth Bank of Australia (CBA) planner scandal. From the AFR: …“In effect, the CBA managed, for some considerable time, to keep the committee, ASIC and its clients in the dark,” said the report, tabled on the last sitting day of the current Senate.

1

Basel lights Australian banks’s heart of darkness

From Banking Day: Quarterly “pillar 3” disclosures by banks may become more complex and also have to be produced on a more timely basis, if proposals from the Basel Committee on Banking Supervision come into force in Australia.The BCBS said this week that “in the wake of the 2007-2009 financial crisis, it became apparent that

13

RBA, RBA, RBA, oi, oi, oi!

Max Walsh is a considered commentator but I have to disagree with him today. He writes in the AFR: Post GFC many central banks and prudential regulators have widened their macroprudential arsenals beyond the interest rate weapon of monetary policy (MoP). Macroprudential tools are not new, and they have had a mixed record in the

17

Would you like a mortgage with your groceries?

By Chris Becker The crowded financial sector looks set to get two new entrants – in the form of the supermarket duopoly behemoths of Coles and Woolworths. From Fairfax: On Monday the supermarket group claimed the alliance with Visa and Macquarie Bank would ”set a new benchmark” for retailer credit cards, as it transfers its Woolworths

10

ECB to lower Australian mortgage costs?

By Leith van Onselen The AFR is reporting this afternoon that the ECB’s decision to charge European banks negative interest rates for funds deposited with the central bank will likely lower Australian banks’ wholesale funding costs and potentially reduce mortgage rates: …analysts believe Europe’s lenders will also be encouraged to invest in higher-returning assets overseas,