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.

17

MS: Banks loan losses about to bottom

From Morgan Stanley: We think retail bank revenue growth will slow and the outlook for business banking remains challenging. The banks are increasing their focus on cost control, but loan losses are bottoming. As such, we think the upgrade cycle has ended. We outline some feedback from recent meetings with bank industry participants: Retail bank margins: Competition is increasing

35

APRA turns bubble manager

From APRA chairman Wayne Byers today: Sound Lending Practices for Housing When we made our last appearance, we were still contemplating potential actions with respect to emerging risks in the housing market. We have since written to all authorised deposit-taking institutions (or ADIs) encouraging them to maintain sound lending standards, and identified some benchmarks that

25

Fitch says NZ macroprudential credit positive

What is Fitch on about? Fitch Ratings views positively the Reserve Bank of New Zealand’s (RBNZ) consultation on the capital treatment for mortgages to residential property investors. Higher capital requirements for investor loans combined with the existing loan to value ratio (LVR) limit could help protect banks against material losses in the event of a property

15

Bank funding costs fall with ECBQE

I keep a regular eye on the major Australian banks wholesale funding costs as guide to how markets are perceiving Australian risk. Since mid last year we have seen a rising trend which pitched sharply upwards as Grexit concerns took centre stage. But the last week and more has seen those concerns evaporate and we

9

Charting the bank (CBA) bubble

From Morgan Stanley comes the growing bank bubble (my words not theirs): Or, more to the point, rampaging CBA:   As I’ve said before, these valuations can be seen as quite rational in a low interest rate environment. The problem in Australia’s case, and what makes these valuations bubbly, is the economic adjustment associated with the

17

Munching on APRA’s wet lettuce regulation

Today I thought I’d have ago at what kind of impact APRA’s declared 10% growth limit for bank lending to property investors actually means for house prices. To begin, the top ten banks in Australia have seen property investor growth of $44.7 billion in the year to January 2015. In descending order, Mac Bank miles ahead on

10

Which banks are driving the investor bubble?

The Australian Prudential Regulatory Authority (APRA) has released its monthly banking statistics that allow us to examine in detail which banks are driving the investor mortgage bubble and, more to the point, which must also be reined for doing so. The statistics show unsurprisingly that in volume terms it is the big four banks that

3

Bring light to the Council of Financial Regulators

Cross-posted from Martin North’s DFA blog. Behind the scenes, it is the mysterious Council of Financial Regulators which is coordinating activity across the Reserve Bank, APRA, AISC and Treasury. This body, is the conductor of the regulatory orchestra, and although formed initially in 1998, it has only had an independent website since 2013.  It is

23

Minack: Bank bubble to bulge

From the AFR comes Gerard Minack: “Every mum and dad who has a term deposit expiring in CBA [Commonwealth Bank of Australia] can roll it back into the term deposit and get a crummy yield, or they can roll it back into the equity and get a better yield. …”I’m not saying you should buy banks,

22

Big bank super-leverage revealed!

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

20

APRA warns again on 10% investment loan limit

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

1

QBE spikes LMI listing

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

2

Securitisation rebounds

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,

0

Genworth kicked again

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.

6

Westpac takes a global punt on LMI

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

20

An early gift for Genworth shorts

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

9

Return of the bank bubble?

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

5

Mac Bank mortgage retrenching on APRA?

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

63

The return of the high LVR mortgage

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

3

Is more securitisation a good thing?

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

10

Offshore funding squeezed as US regulates

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,

7

CBA cash machine pumps, slams Abbottalypse

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,

28

Will APRA neutralise the mortgage free radical?

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

2

Another bumper month for home loans

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