Short Aussie banks?

[scorn]

Be prepared to short the banks! In particular, CBA and Westpac.

50% of Australia’s mortgage market is held by CBA and Westpac, 25% are held by ANZ & NAB (see CoreData’s Australian Mortgage Report Q1 2010)

As at December 2009, 60% of CBA’s lending books are mortgages. 50% of Westpac’s lending books are mortgage.1 Both figures are set to continue to grow.

Look at CBA 2009 annual report—Leverage ratio is almost 20 times (total assets of $620.4 billion against $31.4 billion of equity). Of $620.4 billion of assets, $473.7 billion are loan assets. If around 6.6% of CBA’s loans go bad (any loans, not just mortgages), 100% of its shareholder equity will be wiped out!!2

Australia’s banks have $13 trillion of off-balance sheet liabilities, according to RBA’s figures!3

[rock solid]

Be prepared to short the banks! In particular, CBA and Westpac.

50% of Australia’s mortgage market is held by CBA and Westpac, 25% are held by ANZ & NAB (see CoreData’s Australian Mortgage Report Q1 2010)

As at December 2009, 60% of CBA’s lending books are mortgages. 50% of Westpac’s lending books are mortgage.1 Both figures are set to continue to grow.

Look at CBA 2009 annual report—Leverage ratio is almost 20 times (total assets of $620.4 billion against $31.4 billion of equity). Of $620.4 billion of assets, $473.7 billion are loan assets. If around 6.6% of CBA’s loans go bad (any loans, not just mortgages), 100% of its shareholder equity will be wiped out!!2

Australia’s banks have $13 trillion of off-balance sheet liabilities, according to RBA’s figures!3

Australian banks have due diligence procedures to prevent a U.S. style subprime crisis from occurring. 

[scorn]

I might be going out on a limb here but it's possible US banks had something called due diligence.

The problem is that DD was predicated on the idea that real estate wouldn't crater.

As the article notes, if the Oz bubble does pop it would take just over 6% of CBA's loans to go bad for shareholder equity to be toast.

[Kubes.SG]

Yeah, hope you did short the Aussie Banks last week.   They rose 2% on Friday alone.  Each of the majors are reporting near record profits, and barely got touched during the GFC.

The fact is that the Aussie banking system is quite likely the strongest in the world today.  It was a leader before the GFC hit, and it is THE clear leader after the GFC.    Sure if GFC II really scales up then there will be some capital sourcing challenges, and some increased bad debt risk, but the AU banks will be the last ones you really should be betting against.

Moody's, if these ratings agencies have any credibilty, just took another look at the AU banking system and concluded...

Competition brings strength to banking system, says Moody's
Michael Bennet
From: The Australian April 15, 2010 10:25AM

RATINGS agency Moody's has given the Australian banking system the thumbs-up as competition improves, bad debt worries wane and the domestic economy strengthens.

In the agency’s latest update on the Australian banking sector, senior vice-president Patrick Winsbury said Australia's system remained one of the highest-rated globally.

“Australia's banks have come through the global financial crisis in strong condition relative to many developed markets,” he said.

“Bad-debt provisions are showing signs of peaking and have remained within our tolerance levels for current bank ratings.”

Winsbury also said he didn’t expect a “double-dip” scenario, in a sign of confidence in Australia’s economic recovery.

“Because the banks have substantially increased their capital levels and pre-provision profits have held up well, their ratings have a fair measure of resilience - from a pure asset-quality perspective - to any economic ‘double-dip’ scenario, which anyway is not our expected outcome,” he said.

Moody’s stable outlook for Australia’s banking industry, however, diverts from its negative ratings outlook on Australia's major banks.  Winsbury said the negative outlook on the majors is based on their structural reliance on wholesale funding, which increases their sensitivity to an “exogenous shock”.  But the report found the proposal by the Basel Committee on Banking Supervision to require increased ‘stable funding’ and liquid asset holdings “directly addresses this issue”.

“Although the proposal carries increased costs, there is a reasonable possibility that from a rating perspective - and absent any additional downward pressure on bank margins arising from increased competition - the financial burden could be offset by the improvement in the major banks' liquidity profiles,” the report said.

On the withdrawal of the government guarantee on bank debt in March, the report said it shows the robust state of Australia’s financial system. 

Moody’s also noted that the guarantee was introduced more as a competitive response to other countries' support than Australian banks’ weakness.

The ratings agency also has an “overwhelmingly stable” outlook on Australia’s regional banks and building societies.  But Moody’s warned this outlook could change if they come under increased wholesale funding pressure.

“While there are signs of life in the RMBS market, the limited availability and higher cost of wholesale funding appear likely to continue to impose some constraints on growth and profitability of regional banks and building societies,” the report said.

Moody’s has a weighted average bank financial strength rating of ‘B’ on the Australian banking system.

The weighted averages for the system’s long-term, local and foreign currency, senior unsecured obligations are both ‘Aa1’.

[well yeah, but]

Moodys rates subprime backed cdos as triple a. No credibility whatsoever.

Oz is chronically overpriced. Kubes needs to get off his soapbox and get real.

[Kubes.SG]

Aussie banks are staffed by lazy, inbred, brash and arrogant bankers.  Zero chance of making it big outside australia.

Really?   Explain this then you goose:
http://www.theaustralian.com.au/business/news/james-gorman-to-replace-john-mack-at-morgan-stanley/story-e6frg906-1225771771397

[Kubes.SG]

Moodys rates subprime backed cdos as triple a. No credibility whatsoever.

Oz is chronically overpriced. Kubes needs to get off his soapbox and get real.

Agree with the first 3 of your 4 statements.

[Kubes.SG]

Weird.  Anon's message has disappeared.  It did not seem out of bounds.

I understand your POV and interpretation.  Anon's jibe can be taken both ways, that the banks can't make it, or the bankers can't make it.  I took the latter.

[Kube Buster]

Weird.  Anon's message has disappeared.  It did not seem out of bounds.

I understand your POV and interpretation.  Anon's jibe can be taken both ways, that the banks can't make it, or the bankers can't make it.  I took the latter.

ANZ saw business opportunities in Singapore hence the heavy investment now ---> condition turn favourable compare to Australia

[Kubes.SG]

I meant that Aussie institutions with its institutionalised coteriesm, despotism, inbredism will not matter much outside of Australia.

INdividually they may be ok but when in an institution populated totally by them it becomes a pure waste of time

Something has really upset you about Australia, what is it?    You are so upset you are even making up new words:  "coteriesm".  Not even google could help me with that one.  Can you please explain what you are trying to say so that we can understand your jibberish,  or is that your "jibberisms"?  

As for your other criticism of AU institutions and Australia demonstrating despotism and inbred-ism, that is just an incredible assessment when you compare AU to where we actually live.  The broad definition of "despotism" is:

Despotism is a form of government by which a single entity rules with absolute and unlimited power, and may be expressed by an indvidual as an autocracy or through a group as an oligarchy. Despotism itself means to "rule in the fashion of a despot", and should not be confused with the actual and singular position of 'Despot'.  

Now I am not going to be rude and name names (I assume you are not completely retarded), but to think that this terms actually describes Australia versus other countries we are all familiar with is laughable.

Your other claim of inbred-ism is equal laughable.   Australia has one of the most diverse and dynamic populations on the planet - even more than this little red dot - look at the citizenry not the guest workers who brought into the country with zero rights.

So what's the deal.  Why are you so angry?  

[Kubes.SG]

ANZ saw business opportunities in Singapore hence the heavy investment now ---> condition turn favourable compare to Australia

So why does Singtel, GIC, Temasek, etc invest so widely outside of Singapore?  Are the conditions are so much more favorable compared to Singapore?   

Must be, as these are the same situations.

[Kube Buster]

ANZ saw business opportunities in Singapore hence the heavy investment now ---> condition turn favourable compare to Australia

So why does Singtel, GIC, Temasek, etc invest so widely outside of Singapore?  Are the conditions are so much more favorable compared to Singapore?   

Must be, as these are the same situations.

It's call not putting all your egss in one basket !!!!

[Kubes.SG]

...And that is what the ANZ and other AU banks are doing.  Diversification into underdeveloped banking markets.

[pykeee]

heehee.. both of u please continue this.. this is very enjoyable!!

kubes, am a big fan of yours

[Long not Short]

Shorting Aussie banks is going to be a painful trade, a slow death (perhaps a medium or quick death). They are in good shape with strong balance sheets. They've taken advantage of weakend competition to move ahead.

A leverage ratio of 20 is not an issue, the US banks were in the region of 30-40 times and they were stuffed full of low quality assets.