# Australian Banks exposure to bad debts



## Uncle Festivus (27 February 2007)

Hello,
A question for those that follow banks - do oz banks have any exposure to bad loans that could upset the balance sheet, for example as in the US sub-primes and British markets? Are the banks bad and/or dodgy loans portfolio published anywhere. If so, which bank is the most exposed?


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## ducati916 (27 February 2007)

I posted this a couple of weeks ago now;

Banks possess an interesting spot in the global economy. They are the funnel in the capital formation process and the engine that keeps the liqudity flowing throughout the system.

Banks earn their money traditionally from the spread, the difference between their cost of borrowing, and the rate that they lend it out. In the early days, the depositors cash was the primary source of capital for the banks. As such, a certain percentage had to be kept as liquid reserves, to satisfy day-to-day needs of depositors.

Banks were rated as to their safety in times of trouble. If there was a liquidity crunch, could you still get your money back? This was the underlying cause of many a bank run from the 1700’s through to the 1930’s.

The FDIC pretty much ended this risk for depositors within the US, while concurrently emboldening the bankers to over-reach with their lending and credit risk management. It directly precipitated the S&L crisis of the 1980’s.

Banks overleveraged their Balance Sheets, placing their equity capital under ever increasing risks. What is considered a prudent level of leverage? The more conservative start to say anything over six times equity capital is starting to place excessive risk of failure in the picture should there be an untoward event.

Barings Bank, bank to the Queen, a history of hundreds of years, blew up due to poor risk management and one rogue trader. [Nick Leeson] The lesson being, the bank is only as big as it’s equity capital, and the ability to refinance illiquid assets in time of crisis.

With that provisio, National Australia Bank [NAB] one of the stallwart blue chips of the Australian bourse, a couple of years ago, was subject to it’s own group of rogue traders, slack risk management, and generally shoddy business practices.

Australia as an economy is booming on the back of a strong commodities bullmarket, with the bulls citing ever present and increasing demand from China et al. Real estate markets, like most real estate markets world-wide have also seen steady growth.

We would expect NAB to be a major participant within both of these developments. Certainly the NAB shareprice has appreciated with the All Ords, and is at I believe all time highs.

After running an analysis on NAB, I was left rather concerned; all the following are compounded returns over five years.

Revenues +7.14%
Interest income +9.17%
Interest expense +12.75%
Non-interest income +3.43%
Non-interest expense +0.75%
Loan Loss provisions [-2.75%]
Non-permorming loans +22.7% *[YOY]
Deposits +1.44%
Total loans +4.17%
Equity +3.70%

There is a very nasty trend of information developing here; NPL’s increasing by 22%, Loan loss provisions shrinking by 2.75%, the Equity growing only by 3.7%, total loans increasing by 4.17%. The equity is coming under ever increasing leverage and risk; first by reducing loan loss provisions, reserves are depleted [rather than built] for the trend in increasing NPL’s, thus placing the equity under higher risk.

The leverage has increased by 11% from an aggregate of 9.89 times, to, 10.20 times [6.0 times is considered aggressive] again placing the equity under greater risk. [When your equity = $0.00 you are bankrupt]

This 11% increase in leverage resulted in;
3% increase in Interest income
1.4% increase in Net Profit Margin
[-0.1%] loss on returns to total capital

The end, does not justify the means.

There are some serious discrepancies within reported earnings, and actual earnings. Declared earnings from Income totaled $10.84 over five years. I could only find actual evidence of $8.47 of earnings [including dividends] for the same five years. That means $2.37/share have gone missing somewhere. [I will try to track them down]

Equity to Assets, the golden ratio for banks. This is their ability to absorb short or longer term, adverse economic conditions, as banks are highly correlated to the economy. We want to see a large number. As a minimum, 7.5 is the cut-off, 6.0 is the average, and below 5.0, trouble ahead. NAB is average at 6.0 thus fails the safety test.

Cash-flow is another major area of concern, and ties directly into the missing earnings.
Cash-flow from Operations has been on aggregate running losses of [-$2761] this figure blew out hugely in 2006 to [-$11514]

Thus, after banking business, NAB lost a ton of money. They sold shares, and dramatically increased their bonded debt. This accounts for the disconnect between Interest income, and Interest expenses. The low cost source of capital, viz. deposits, has not been pursued, or customer satisfaction is low, whatever the cause, it is hurting their earning power.

Where are the losses in operations concentrated?

Three entries caught my attention and this is where we came in; trading losses. A loss of $3803 resulting from transactions in trading securities, a loss of $1507 from trading derivatives, a loss of $2638 of securities marked to market.

With their chequered history in regards to risk management, and the sad history of trading blow-ups; Barings, LTCM, et al, this is an area that when carried out by a commercial bank, as opposed to an Investment Bank, are you really buying their stock for their commercial banking skill set, or their capital markets accumen?

All-in-all, I wouldn’t be holding this stock under the current market conditions. Strong bullmarkets in any number of geographic regions, asset classes and these guys manage to lose a bundle of money. If their stock was cheap, possibly I might think on it, but the stock is overpriced into the bargain.


jog on
d998


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## Knobby22 (27 February 2007)

Competition from the industry superfunds bank Members Equity is hurting them in the home lending market and GE is hurting them in the personal loan market.

Westpac's latest advertising campaign about them being a "good" bank is also interesting. They were known as the "Bastard Bank" through loans they did with farmers tied to a foreign exchange rate that sent the farmers broke when the $A fell. Trying to claw back customers by taking over BOM didn't help and in fact made them more unpopular with Melbournians, many who switched banks after the takeover.


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## Kimosabi (27 February 2007)

The only thing I have been able to find regarding Aussie Banks exposure to slowing mortgage/defaulting loans has been a Huntley Analysis regarding the ANZ on the 18/12/2006

*Mortgage Lending Slowing*

"ANZ has provided a timely warning about substantially rising loan loss provisions in the coming year. Recent interest rate increases are affecting overall lending with a slowing in the rate sensitive mortgage lending segment. From heady growth above 20% two years ago the growth rate in mortgage lending is currently around 12% and slowing."

*Increasing Loan Loss Provision* 

"In FY06 ANZ’s loan loss provision was $407m comprising an individual provision of $338m and a collective provision of $69m. This compared with FY05’s total provision of $565m comprising an individual provision of $357m and a collective provision of $139m. In the current year it is likely the total provision could increase by around 50% to near $600m – individual $450m and collective $150m."

No one seems to have connected the dots yet in Australia regarding the Mortgage foreclosures and the Banks exposure.


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## lamborghini (2 March 2007)

All good points!
I can add, being a Mortgage Broker (independant) The percentage of home loans I did last year for my clients, only 10% were with the Big4 (ANZ,CBA,NAB,WBC) . 

They are not competetive against all 20 other (bank and non bank lenders on our panel).  They do have the branches though, commonwealth has the most, but they look at these as expenses! These banks still follow the UK system of banking.

ING,CitiBank,RAMS and Superfunds - Don't have any branches (expenses) but are getting more market share! They follow the US system of banking. They use Brokers and F/Planners 100% - no branches or bank employees.

I which lot I would invest in. Banks (and brokers like me) do get royalty income from each loan on their books- monthly!  This is why this space is so competetive. Ultimately those with the best service (and products) will attract more loans!

Oh and all my clients personal loans I direct to 2 or 3 credit unions.

When I started the Big 4 probably had about 70% of the loan market. That is probably 40% now and declining. Yet they still make record profits! Through increased fees, investments, financial planning and insurance.   Can they keep it up?    I'm not so sure!


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## Kimosabi (2 March 2007)

I was doing some research on Mortgage Choice (MOC) and noticed the two co-founders have sold off substantial portions of their holdings in MOC over the past two years.

They sold of 12%($19 Mil) of issued capital on the 9/9/2005.  One the co-founders then sold off another 8.5%($25 mil) of issued capital on the 6/4/2006.

I found this somewhat interesting after reading on what's happening in US Subprime.


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## dhukka (2 March 2007)

Uncle Festivus said:
			
		

> Hello,
> A question for those that follow banks - do oz banks have any exposure to bad loans that could upset the balance sheet, for example as in the US sub-primes and British markets? Are the banks bad and/or dodgy loans portfolio published anywhere. If so, which bank is the most exposed?




Uncle Festivus,

Yes Australian banks do have exposure to loans that may go bad. Its part of business that's why they make provisions for doubtful debts, the last few years has seen abnormally low provisioning levels so it is not surprising to see them rising at this point in the cycle. ANZ gave the market a heads up on this at their FY06 result back in November. 

The last time we were at a similar point in the economic cycle in 2001 I was an assistant banking analyst. At its height there would be couple of major loans falling over every week and we wouldn't find out about it until it hit the news. They would range from a few million to a several hundred million in size. Quite often 2 or 3 of the major banks would be lenders with differing amounts of exposure. We would call the bank and they would tell us what their exposure was say $20m and that they were writing 90% it off. But they would never divulge the composition of their loan portfolio. The most they would ever say was something like - we have our eye on a few loans we think will become impaired in the next couple of months and give a rough estimate of the amount. 

Back then we wrote a 100 page document saying that the banks were well provisioned to see through a round of bad debts and we were right. They absorbed it well. The question is how far have they extended themselves this time and are they as well prepared? Have they been chasing loans at the risky end of the market? No doubt there is more debt out there this time round just how exposed are the major banks? 

Ducati brings up the important point of Capital ratios, traditionally NAB has operated on the thinnest capital ratios of the major banks. However that was 5-6 years ago. I haven't been following the banking sector. ANZ got themselves into a bit of trouble in asia a decade ago but then slowly reduced their exposure and became the star of the banking sector. I don't know what they've been up to in the last five years but I know they were always keen to get back into asia once they thought the time looked right. 

Don't know if any of that helps.


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## ducati916 (2 March 2007)

A major risk for all banks are *Credit Revolvers*

Credit Revolvers are contractual agreements with Corporate customers for a line of credit to support Working Capital.

The major risk for analysts are that they are *Off Balance Sheet * 
This is perfectly legal as of course they are not current liabilities, just a contractual possible future liability.

Drawdowns on credit revolvers tend to occur during tough business conditions. Fee grabbing by the banks for credit revolver facilities can place the balance sheet in trouble if overleveraged

jog on
d998


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## Uncle Festivus (2 March 2007)

The reason I asked this question was that I have a friend who is a property valuer, & he's been telling me that there has been an extraordinary increase in mortgagee in possession sales that he's had to value. Whereas only 2 years ago he would get probably 3 a month, now he's getting about 4 a week. People are hurting out there in mortgage & rental land; just wondering when this will have an effect on the economy, and trading strategies eg shorting banks after they go ex div?. 

Ducati, it sounds like NAB may be one to stay clear of?.


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## Kimosabi (2 March 2007)

Must be about time for an Aussie Subprime Mortgage meltdown...


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## happytown (2 March 2007)

Kimosabi said:
			
		

> Must be about time for an Aussie Subprime Mortgage meltdown...




well if them i-mer-i-cans we like to mimic are any indication,

and from the bowels of the christian science monitor,

and yes you must be a believer to read this,

"from the March 2, 2007 edition

*Foreclosures rising among high-risk US mortgages*

Loans made to people with weak credit during the housing boom have pushed more than 20 companies into bankruptcy.

...

At issue is a class of mortgages that lenders call "subprime" because they do not qualify for the lowest or prime interest rate. These are designed for high-risk borrowers, those with fixed incomes, or those who have had credit problems in the past. Since 1998, more than 6 million Americans have borrowed in this way, according to the Center for Responsible Lending (CRL). The majority of these loans are adjustable-rate mortgages (ARM) that are tied to changes in interest rates. 

One in five loans subprime

That's a dramatic increase in only a decade. In 1995, subprime mortgages represented a niche market: less than 5 percent of mortgages originated. Today, Wall Street analysts estimate they make up from 18 percent to 24 percent. 

..."

http://www.csmonitor.com/2007/0302/p01s02-usec.html

cheers


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## wayneL (2 March 2007)

Skipping over to the evil empire for a moment, but on the same vein, an interesting article about Goldman Sachs/Merryl Lynch.



> *Goldman, Merrill Almost `Junk,' Their Own Traders Say* (Update1)
> 
> http://www.bloomberg.com/apps/news?pid=20601087&sid=a0j4oiYE3Bfw&refer=home
> 
> ...


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## Dr Doom (3 March 2007)

Is that a horse I see bolting off in the distance?

~~~~~~~~~~~~~~
WASHINGTON (MarketWatch) -- Federal bank regulators demanded tougher standards for subprime loans Friday, saying they're worried that borrowers of adjustable-rate mortgages may not understand the risks associated with them.

http://www.marketwatch.com/news/sto...x?guid={13649CAD-C0A3-446D-8CC1-A46A6DAB468B}

Buffett weighs in
Subprime loans have attracted wide attention, and Thursday, Warren Buffett, chairman of Berkshire Hathaway, told shareholders in his annual letter that the slowdown in residential real-estate markets partly stems from weakened lending practices in recent years.
"The 'optional' contracts and 'teaser' rates that have been popular have allowed borrowers to make payments in the early years of their mortgages that fall far short of covering normal interest costs," he said. "But payments not made add to principal, and borrowers who can't afford normal monthly payments early on are hit later with above-normal monthly obligations."
*"This is the Scarlett O'Hara scenario: 'I'll think about that tomorrow.' For many home owners, 'tomorrow' has now arrived," Buffett wrote.*


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## ducati916 (3 March 2007)

I have an analysis of Lehmans under "Where's all the Yen" on the blog pg3 for any interested

jog on
d998


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## Kimosabi (3 March 2007)

This is probably the best place for a comprehensive ongoing round-up on the US Sub-prime market debacle ==> http://ml-implode.com/

This site is currently sitting at 30 Sub-Prime(was 26 at the beginning of the week) lenders that have disappeared into their own puff of stupidity.

I personally think the US administration lowered interest rates and lending standards in the US to placate the populace while they went off and had their dirty, illegal war in Iraq.

****, I just read this:



> *Wall Street Journal reports alt-A mortgage defaults double*
> 
> News Digest, 1 March 2007
> 
> ...


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## Dr Doom (6 March 2007)

NEW YORK (MarketWatch) -- Several analysts agreed Monday that New Century Financial Corp., one of the nation's largest subprime mortgage lenders, likely faces liquidation or bankruptcy following revelations that it's under criminal investigation and in violation of debt covenants with several lenders.
"New Century is more likely to enter the death spiral we had feared, as filing delays, financial difficulties, likely restricted liquidity and regulatory/criminal investigations could conspire to limit its options outside of bankruptcy," Merrill Lynch analysts wrote early Monday.
As troubles continue to roil the market for subprime mortgages, New Century  disclosed late Friday that it's technically in default with several lenders and that federal regulators have begun an investigation.


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## Smurf1976 (6 March 2007)

Kimosabi said:
			
		

> This is probably the best place for a comprehensive ongoing round-up on the US Sub-prime market debacle ==> http://ml-implode.com/
> 
> This site is currently sitting at 30 Sub-Prime(was 26 at the beginning of the week) lenders that have disappeared into their own puff of stupidity.



It's ticking up another one practically every business day now so this seems to be gathering momentum. It's at 32 now, up again today.


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## wayneL (6 March 2007)

Dr Doom said:
			
		

> NEW YORK (MarketWatch) -- Several analysts agreed Monday that New Century Financial Corp., one of the nation's largest subprime mortgage lenders, likely faces liquidation or bankruptcy following revelations that it's under criminal investigation and in violation of debt covenants with several lenders.
> "New Century is more likely to enter the death spiral we had feared, as filing delays, financial difficulties, likely restricted liquidity and regulatory/criminal investigations could conspire to limit its options outside of bankruptcy," Merrill Lynch analysts wrote early Monday.
> As troubles continue to roil the market for subprime mortgages, New Century  disclosed late Friday that it's technically in default with several lenders and that federal regulators have begun an investigation.




NEW closed at $4.56 last night... and these were >$40 less than a year ago. lol

...of particular interest to me


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## Uncle Festivus (8 March 2007)

Rates 'biting into mortgage payments'

March 8, 2007 - 3:14PM

A growing number of Australian households are falling behind in their mortgage payments as record indebtedness, rising interest rates and high petrol prices continue to bite.

Moody's Investors Services has found that 30-day delinquency levels in the fourth quarter of 2006 were on the rise, particularly in December, when seasonal factors such as Christmas spending depleted borrowers' pockets.........

http://www.smh.com.au/articles/2007/03/08/1173166869633.html?sssdmh=dm16.250112


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## ducati916 (8 March 2007)

The Credit cycle is starting to turn, and it will bite the market in the ass.
Add in a recession, the end of a *cyclical* bull, and the secular bear is starting to stir.

Watch out goldilock's.
Better start jogging.
d998


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## Knobby22 (8 March 2007)

Uncle Festivus said:
			
		

> Rates 'biting into mortgage payments'
> 
> March 8, 2007 - 3:14PM
> 
> ...




It will be interesting when interest rates rise repeatedly later this year and early next year.


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## Uncle Festivus (9 March 2007)

..........*Bank of America Corp., the third-biggest manager of bond sales in the U.S., is telling clients to unload corporate bonds because of concern that ``housing-led weakness'' may spread. A month ago, the firm, citing what it called a ``Goldilocks'' economy, recommended buying company debt*.......

http://www.bloomberg.com/apps/news?pid=20601109&sid=anfMB9SdI9u4&refer=exclusive

While I was doing research around the various financial sites I became aware of a big disconnection with what's happening in the stockmarkets & what is actually happing in the real world. This paragraph above is a little bit of a concern, when such a large institution is taking such action, at the same time as the DOW was at one stage up over 100 points, & ends up 70 points higher. 

I think the speed of this 'secondary wave ' of correction will be mindblowing!.


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## Mofra (9 March 2007)

lamborghini said:
			
		

> They are not competetive against all 20 other (bank and non bank lenders on our panel).  They do have the branches though, commonwealth has the most, but they look at these as expenses! These banks still follow the UK system of banking.
> 
> ING,CitiBank,RAMS and Superfunds - Don't have any branches (expenses) but are getting more market share! They follow the US system of banking. They use Brokers and F/Planners 100% - no branches or bank employees.



It is also worth remembering that many non-deposit holding Bank lenders are completely securitised, ie all loans are approved under an LMI contract (although below 80% LVR the lender covers the cost of LMI).

This means that the rise in default rates means the bad loans move off the balance sheet but there is no impact on recovery costs (LMI covers the lender, not the borrower).

Worth also noting that RAMS are lending at almost 0% profit margins, as they are close to a sale and an increase in their loan book size will increase their purchase price.


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## Mofra (9 March 2007)

Uncle Festivus said:
			
		

> Rates 'biting into mortgage payments'
> 
> March 8, 2007 - 3:14PM
> 
> ...



The default auction rate comparing Dec 05 & Dec 06 tripled in Sydney, and as a consequence LMI providers (there are only two currently operating in Australia) have tightened their guidelines.

The sub-prime market could be in some trouble, although in Australia the prime mortgage markets are the most competitive so sub-prime lenders operate on larger margins so as to cusion some of the fall. It is some comfort to know we are in better shape in the US (in mortgage terms) for exposure to credit.


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## doogie_goes_off (9 March 2007)

Be more worried by newer lenders like ING and AXA


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## Uncle Festivus (9 March 2007)

RISING interest rates and record debt levels are taking their toll on the nation's lenders with mortgage payments more than 30 days in arrears hitting a 10-year high in December.
Figures released by Moody's Investors Service showed that delinquencies rose strongly in October and November before jumping again in December to 1.26 per cent of outstanding loan balances - the highest level since data was first collected in 1997.

http://www.news.com.au/business/story/0,23636,21349237-462,00.html


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## Uncle Festivus (1 August 2007)

Today the big Mac, tomorrow NAB?


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## Uncle Festivus (6 September 2007)

This week St George?



> The Australian banks' safe haven status is increasingly coming under pressure amidst what only can be described as ongoing freezing temperatures on global debt and credit markets.The latest victim could well be Australia's fifth largest bank, St George (SGB), with analysis by Deutsche Bank analysts revealing management's 10% EPS growth target for FY08 should now be considered under threat.
> 
> http://www.sharecafe.com.au/fnarena_news.asp?a=AV&ai=5827


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## dhukka (6 September 2007)

The RBA has changed the rules of engagement.



> *Reserve Bank of Australia Pledges Funds to Banks*
> 
> Sept. 6 (Bloomberg) -- Australia's central bank said it will buy debt backed by home loans, after the rout in the U.S. subprime market dried up demand for asset-backed securities and drove up money market rates.
> 
> ...


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## Uncle Festivus (8 March 2008)

So the apparent relentless sell down of Aussie banks has not been without reason as it appears.....



> *AUSTRALIA'S financial institutions have lent billions of dollars to home buyers who were not subject to basic credit checks and had a history of defaults, putting them in the "sub-prime" category that continues to terrorise world financial markets.*
> The revelation, contained in research conducted by Dun & Bradstreet exclusively for The Weekend Australian, will add to investor fears about Australian banks' exposure to the global turmoil caused by the collapse of the sub-prime mortgage market in the US.
> Shares in the Big Four banks, which have already lost $100billion in value since their highs last year, yesterday led the stock market sharply lower. The benchmark S&P/ASX 200 index slumped 3 per cent after concerns about the international credit crisis again stalked Wall Street.
> The value of the Australian stock market has now shrunk $400 billion - or 25 per cent - since the sub-prime problems were first revealed in mid-last year.



http://www.theaustralian.news.com.au/story/0,25197,23338906-601,00.html


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## noirua (8 March 2008)

I only hope that the Government does not try and bail a Bank out. The U.K. now have over A$230 billion at stake in the bail out of Northern Rock and two more Banks are looking shakey. 
I saw a programme that showed the Icelandic Bank as one of high risk Banks that are offering very high interest rates round the world. 

If a Bank goes down then the pieces are picked up cheaply by other Banks, and bankruptcy ends the debt problems.
Those with money invested in a foreign Bank may find the safeguards far less than with an Aussie Bank or Institution.


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## ROE (8 March 2008)

Uncle Festivus said:


> Hello,
> A question for those that follow banks - do oz banks have any exposure to bad loans that could upset the balance sheet, for example as in the US sub-primes and British markets? Are the banks bad and/or dodgy loans portfolio published anywhere. If so, which bank is the most exposed?




do they need subprime? when you have Allco, Centro, ABS, MFS, City Pacific and many more going belly up


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## Uncle Festivus (8 March 2008)

ROE said:


> do they need subprime? when you have Allco, Centro, ABS, MFS, City Pacific and many more going belly up




I assume up till now the public face of the negativity was due to these issues. Now it's becoming public knowledge of the extent of the banks exposure to their very own 'sub prime' sector. Those on the inside, and a poster on this forum once, have known the real story all along. 

It's obviously only going to compound the issue now.


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## Aussiejeff (8 March 2008)

noirua said:


> I only hope that the Government does not try and bail a Bank out. The U.K. now have over A$230 billion at stake in the bail out of Northern Rock and two more Banks are looking shakey.
> I saw a programme that showed the Icelandic Bank as one of high risk Banks that are offering very high interest rates round the world.
> 
> If a Bank goes down then the pieces are picked up cheaply by other Banks, and *bankruptcy ends the debt problems*.
> Those with money invested in a foreign Bank may find the safeguards far less than with an Aussie Bank or Institution.




Bankruptcy might well end the debt problems for the collapsing bank, but what about the many, many creditors and businesses who would be relying on that failing bank to pay THEM back to avoid their own liquidity crisis or bankruptcy? There would be a BIG ongoing domino effect of related creditor's business closures/bankruptcies if a medium to large bank were to go under - hence the seemingly over-the-top efforts by governments to forestall such a dire event.  

AJ


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## Aussiejeff (8 March 2008)

Uncle Festivus said:


> So the apparent relentless sell down of Aussie banks has not been without reason as it appears.....
> 
> http://www.theaustralian.news.com.au/story/0,25197,23338906-601,00.html




From the same article ...

_"Dun & Bradstreet has also discovered that, every three months, Australia's lending institutions extend almost *$1billion in so-called sub-prime loans* to customers with poor credit history and whose previous defaults were not picked up in the credit-checking process"_.

Given what has been happening in world financial markets over the last six months, you would think these Oz clowns would tighten up their lending act... 

BTW, I wonder how companies like Harvey Norman can continue to offer "NO payments or interest for 3 years" type loans for the latest digital goodies... don't those sort of "deals" just push the whole credit envelope a bit far?  

AJ


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## noirua (8 March 2008)

Aussiejeff said:


> Bankruptcy might well end the debt problems for the collapsing bank, but what about the many, many creditors and businesses who would be relying on that failing bank to pay THEM back to avoid their own liquidity crisis or bankruptcy? There would be a BIG ongoing domino effect of related creditor's business closures/bankruptcies if a medium to large bank were to go under - hence the seemingly over-the-top efforts by governments to forestall such a dire event.
> 
> AJ




Fair comment Aussiejeff, and even Dr Marc Faber, who went as far as to suggest that the US Citibank may be in trouble. Did say the Federal Government would have to bail them out. 
What happens if three or four Banks and Institutions are in trouble in Australia: Does the Federal Government risk $500 billion to bail them out?


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## Aussiejeff (8 March 2008)

noirua said:


> Fair comment Aussiejeff, and even Dr Marc Faber, who went as far as to suggest that the US Citibank may be in trouble. Did say the Federal Government would have to bail them out.
> What happens if three or four Banks and Institutions go under in Australia: Does the Federal Government risk $500 billion to bail them out?




No probs.... apparently the Government has about $51 Billion in the Future Fund it could burn! LOL

Oh.... but that leaves a shortfall of......


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## Aussiejeff (9 March 2008)

Overnight from the US:

_"NEW YORK (Reuters) - "Wall Street banks are facing a *"systemic margin call"* that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages", JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.

JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.

"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. *"We would characterize this situation as a systemic margin call."*_

Gotta love the new terminology being invented by financial whizkids in an attempt to explain the state of the New World ....

Read the full misery here...

http://www.reuters.com/article/ousiv/idUSN0832645120080308

I suspect there is going to be not much light at the end of the ever-lengthening long, dark tunnel then, for our own banks. 

*Sigh*


AJ


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## disarray (9 March 2008)

hi, a few questions if i may.

doesn't all this just flush away the virtual money that the banks created, returning the financial system to realistic valuations? this is a good thing overall isn't it?

won't the banks will come out of this better off, having received the actual assets of defaulting borrowers in return for "money" they conjured out of thin air?

if banks needed to be bailed out it would be on actual assets and savings wouldn't it, not whatever bullsh1t figure they concocted with pretend money?


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## numbercruncher (9 March 2008)

Good Read/find Aussiejeff .....


Interesting that article JPMorgan has revised expected House price drops upwards to 30pc, currently they have seen a drop of 14pc.

Much more carnage to come ...


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