# Bank with highest tier 1 capital ratio?



## sinner (23 December 2008)

Hi guys,

The search is on, for the bank/credit union/building society/whatever with the highest tier 1 capital ratio.

I spent a while poking around last night the best I could find was Credit Union Australia at ~15%.

http://www.cua.com.au/wps/wcm/connect/website/home/sitetools/corporategovernance/prudential/

Compared to say the big 4 banks sitting at 7-8%. 

I also notice the share price for CUA is only $10! Pretty cheap, I will probably switch once my uni student fee exemption status on my commbank account expires!


----------



## theasxgorilla (23 December 2008)

I got a letter about this from my credit union a while back, and their liquidity and capital ratio numbers were rock solid.  I'll see if I can find their statement.  They're not publicly listed though (thankfully).  By the members for the members.


----------



## sinner (23 December 2008)

Gorilla, sorry, when I say share price I mean the cost of becoming a member (i.e. owning 1 share) in the credit union. CUA is not publically listed.


----------



## theasxgorilla (23 December 2008)

Aha, okay, well in that case it's $10 a share at my credit union as well .


----------



## Garpal Gumnut (23 December 2008)

sinner said:


> Gorilla, sorry, when I say share price I mean the cost of becoming a member (i.e. owning 1 share) in the credit union. CUA is not publically listed.




Tell us more sinner , this is good devilling.

gg


----------



## GumbyLearner (24 December 2008)

All banks are screwed ATM including any organisation wanting to entertain the fantasy that they have a different looking umbrella! Find a different investment option. IMVHO!


----------



## sinner (24 December 2008)

GumbyLearner, are you suggesting that if we agree with you that this question now becomes pointless? We should all just proclaim we are doomed and stick our heads in the sand?

No thanks, I prefer to keep learning...for one I am very curious to see how these institutions with much higher capitalisation ratios will fare over the longer term compared to banks currently at <10% ratios, and for all your negative sentiment here you don't know how they will do more than anyone else. In fact I would go so far as to say that you will be worst off out of everyone by having your opinion so set in stone.

A new one for the night guys

Tier 1 capital ratio for the Credit Union: 22.02%

http://www.sgecu.com.au/pdf/SGEPrudentialDisDoc.pdf

Can anyone beat 22% ?


----------



## chops_a_must (24 December 2008)

Bit hard to compare.

Because their funding costs are so much higher compared to banks, so they need to keep the extra capital in reserve.


----------



## sinner (24 December 2008)

There are plenty of credit unions operating at around the 10% tier 1 capital mark, so I don't see why higher ratios than that aren't a useful indicator of capitalisation.


----------



## GumbyLearner (24 December 2008)

sinner said:


> GumbyLearner, are you suggesting that if we agree with you that this question now becomes pointless?




No not at all sinner!

All Im saying is anyone offering 22% in the current enviroment is a total bs artist. They're full of garbage! If someone offered you a smaller gain, say anything that matched the coming inflation or slighty better you might give them an audience.

The maxim is very simple : Too many people living beyond their means!

DISCLAIMER: Including the people keeping up with the "Jones" Pardon the pun!


----------



## sinner (24 December 2008)

GumbyLearner said:


> No not at all sinner!
> 
> All Im saying is anyone offering 22% in the current enviroment is a total bs artist. They're full of garbage! If someone offered you a smaller gain, say anything that matched the coming inflation or slighty better you might give them an audience.
> 
> ...




Obviously for some unknown reason you think the % quoted are interest on deposit and have no clue what the tier 1 capital ratio is or why people are discussing it.


----------



## GumbyLearner (24 December 2008)

sinner said:


> Obviously for some unknown reason you think the % quoted are interest on deposit and have no clue what the tier 1 capital ratio is or why people are discussing it.




Tier one is garbage if the people claiming tier  1 are garbage.

www.madoff.com


----------



## sinner (24 December 2008)

Seriously GumbyLearner, what the hell are you talking about?

What the hell does Madoff have to do with tier 1 capitalisation ratio of Australian ADIs? For one major point, all of Madoffs companies are/were LLCs?

Are you honestly suggesting that Australian credit unions are fudging their numbers and getting away with it, with no scrutiny or cry from APRA? Do you have any evidence to back up these ridiculous claims? Just the claim that they might be fudging the numbers is  what would be their motivation to do it? Clearly judging by the capitalisation of the big 4 banks, consumer sentiment is not driven by those ratios, so why exactly do you think they would fudge the numbers? Do you even know what the numbers mean? I think it is pretty obvious you do not...


----------



## GumbyLearner (24 December 2008)

If I were you I would invest in staright-in unadultered commodities

Everything else in this enviroment sucks ass because these people want to
give you a corporate impression they know better!

They DO not know better! Invest in financials at your peril! More smacking as a result of irresponsible, imprudent and PHANTASMAL too come! IMVHO Dont give them anything!!!!!!!!!!!  Even the steam off your own turds!


----------



## sinner (24 December 2008)

Really, who cares if you were me? You clearly have no interest in what I am invested in, only in putting forward your own off topic and largely irrelevant view as well as making incorrect "very humble" assumptions about my personal investment strategy from the contents of this thread, which were supposed to be purely didactic.

I would not have bothered even replying to your first post if I had realised you had no idea what was being discussed.

If you are not just an arm-chair commentary type, and have actually put your money where your mouth is into "un-adulterated commodities" (whatever that means) then you must have a broker, meaning you trust some financial institution somewhere, two actually, if you want to liquefy your holdings or take profit they need to go somewhere and somehow I doubt you are redeeming into hard cash. 

So what exactly is your point? Why are you posting in this thread?

EDIT:

Slightly higher

http://www.memberfirst.com.au/ssl/axs/1/assets/common/assets/Public disclosures.pdf
Tier 1 capital ratio for the Credit Union 25.33%


----------



## theasxgorilla (24 December 2008)

GumbyLearner said:


> Find a different investment option. IMVHO!




I'm sure we could call this investing.  I can buy a "member share" in my credit union and that's all I get, a single share 

From their website:



> With global markets behaving as they have been recently members need to be very mindful in relation to their finances. *You need to invest with an organisation that
> reflects your prudence.*
> 
> Denis Grehan, Chief Executive Officer, said that “Maroondah Credit Union is unusual as it funds its loan portfolio entirely from its own members’ funds. Unlike a lot of larger financial institutions, Maroondah Credit Union does not borrow funds from wholesale markets to fund its loans. Consequently the lack of funds in that market
> ...


----------



## GumbyLearner (24 December 2008)

Doesnt really matter I personally recommend anyone reading this thread should buy some GIKD meaning PHYSICAL bullion because most western governments have been so scared of each OTHER TO form of a solution, that they think they might loose what they have INDIVIDUALLY worked for....
can i have a suntan please & give every anti-pop star one TOO!!!!!!


----------



## Nyden (24 December 2008)

GumbyLearner said:


> Doesnt really matter I personally recommend anyone reading this thread should buy some GIKD meaning PHYSICAL bullion because most western governments have been so scared of each OTHER TO form of a solution, that they think they might loose what they have INDIVIDUALLY worked for....
> can i have a suntan please & give every anti-pop star one TOO!!!!!!




What the hell are you on? Lay off it, whatever it is. Commodities, eh?  They've been doing beautifully, haven't they?  If the deflation scenario plays out, your gold could be as worthless as all of your exclamation points 

Strange, but I do get the feeling you rode the banks all the way down, and then jumped on the gold-bug wagon - I could be wrong though : Either way, if such comments reflect your "analysis" of gold, it's probably time we all start shorting the stuff.


----------



## GumbyLearner (24 December 2008)

Nyden said:


> What the hell are you on? Lay off it, whatever it is. Commodities, eh?  They've been doing beautifully, haven't they?  If the deflation scenario plays out, your gold could be as worthless as all of your exclamation points
> 
> Strange, but I do get the feeling you rode the banks all the way down, and then jumped on the gold-bug wagon - I could be wrong though : Either way, if such comments reflect your "analysis" of gold, it's probably time we all start shorting the stuff.




Short the media, they have been (in the recent words of Blageovic(wrong, wrong and WRONG)! And they are still wrong! Believe them and DIE!

Its akin to the guy that used to run Paddy Cummins Tea Shop running Parliament! And I used to look
to look outside OZ for direction! NOT ANYMORE!!!! Anyone for 2-UP?


----------



## trading_rookie (25 December 2008)

Hey sinner, great topic. I don’t know much about credit unions, so besides deposits are they exposing themselves to potential loan defaults as the majors? For example too much risky business with ABC Learning, B&B, Centro, and Allco meant CBA compare to the other three resulted in it having a lower tier 1 ratio until the AUD1.6 billion capital raising last week that got their (CBA) value back to 7-8%.

How will the government guarantee that ends in three years effect tier one ratios of non-banks? The banks are currently moaning that the non-banking sector is offering ridiculous interest rates compared to the them since if they happen to collapse the government will bail out depositors. As far as the banks are concerned they’ve earned their AA ratings.

From what I’ve learnt about Basel II’s tier 1 ratio from the major financial rag that has dominated it’s financial services pages for the last couple of weeks is it was put into place to guarantee that banks didn’t over expose themselves to too many bad loans at the expense of depositors. With a ratio of 7-8% (can’t recall exact figure) being the benchmark that’s considered safe.


----------



## sinner (25 December 2008)

Hi tr,

Not sure I am qualified to answer your questions.

I do know that most credit unions do their loaning to members, generally with prudential guidelines limiting the lending to prime borrowers with max 70-80% of total value. 

This is unlike the big 4 banks who obtain their debt from the wholesale market and derivatives based on it. This is the debt market that fueled massive bank growth over the last decade, and this is the debt market that I am afraid will seize up.

Frankly, I am also afraid that any major crisis in the wholesale debt market to hit our shores will badly affect both those well capitalised and those not. Whether your subscribe to the deflationary viewpoint, peak credit, hyperinflation or whatever, the demise of the wholesale debt market in its current form seems like a stark possibility.

Regardless, I feel the urge to research the issue and will watch intently to see what happens to these institutions versus those less with lower capital ratios. 

As a saver, I do not feel any particular loyalty to either my ING Direct or Commonwealth Bank accounts, and will probably soon move some cash to one of these more prudent institutions as part of my overall investment strategy. I definitely subscribe to the viewpoint of keeping your money in a few different places.


----------



## krk004 (7 April 2009)

Sinner,

Where are you at with your research?

Very Interested,

Regards,


----------



## sinner (15 July 2010)

Anyone remember this thread? I have still so far yet to find a CU which is open to the public and better capitalised than SGECU.

I have looked, very very hard. There are a few better capitalised ones but they are not open to the public and look very very small. GCU and LysaghtCU are good examples.

Looking at the latest "Prudential Disclosure Document" SGE have actually become less capitalised, when I first posted it was tier 1 at 22.02 and now tier 1 sits at 21.38%.

Being a Melbourne Uni staff, I have opened a MUCU account and while they are less capitalised still (16.8% on tier 1) their book is much more concentrated to residential mortgages. SGE seems to have taken on a lot of credit card and other retail debt in the last 12 months.


----------



## Bushman (15 July 2010)

chops_a_must said:


> Bit hard to compare.
> 
> Because their funding costs are so much higher compared to banks, so they need to keep the extra capital in reserve.




Sinner - did you follow up on Chops post? Relevant to the discussion as I am sure that the wholesale costs would be much higher for the credit union than the big 4.


----------



## BELFORT (15 July 2010)

While Tier 1 is important in reviewing a banks capital buffer, I'd be looking more closely at risk management systems+ overall management structure and past history in dealing with risk. 

In terms of the big 4 having less tier 1 , they all have APRA approved management systems - and therefore are not required the same amounts of T1 as smaller credit unions etc. 

T1 capital provides poor returns for banks, which is why they hold as little as they can (APRA + BASIL 2 comp). 

Not to mention the adv of wholesale funding v asset backed funding for the larger banks ( lower cost of funding due to higher credit rating + no need to hold lower yielding assets) 

Again , i'd be looking more closely as processes approved by APRA for the bif 4, which all differ slightly. 

Cheers, 

Belfort.


----------

