# Australia's big four banks may need support



## theasxgorilla (12 October 2008)

http://www.bloomberg.com/apps/news?pid=20601081&sid=aeQqbDX9u.8M&refer=australia

Read the article carefully...it's not suggesting that our banks are actually in trouble...but due to perceptions created by the governments of several other countries implementing various guarantees for their banks, Aussie banks are at a competitive disadvantage.

This a very big factor in the recent extreme Aussie dollar weakness, IMO.


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## Sir Burr (12 October 2008)

*$20k deposit guarantee likely to be lifted*

http://www.news.com.au/business/money/story/0,25479,24481708-14327,00.html


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## theasxgorilla (12 October 2008)

Sir Burr said:


> *$20k deposit guarantee likely to be lifted*




There is no talk of when, but it seems Australia won't be on sale for too much longer!


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## Muschu (12 October 2008)

Sir Burr said:


> *$20k deposit guarantee likely to be lifted*
> 
> http://www.news.com.au/business/money/story/0,25479,24481708-14327,00.html




$20k guaranteed is not much for a retiree with their superannuation in a bank deposit.  Does this mean "per bank"?  Maybe someone with $200k could use 10 banks then?


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## BradK (12 October 2008)

Muschu said:


> $20k guaranteed is not much for a retiree with their superannuation in a bank deposit.  Does this mean "per bank"?  Maybe someone with $200k could use 10 banks then?




Yes, can someone confirm how that would work? 

Could you spread your money across lots of banks? And if, say, you were unlucky to have 3 go kapoom! you would get $60,000? 

Brad


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## noirua (9 March 2009)

Depending on your point of view you may or may not think that the problems with UK Banks will come to shore in Australia.

All the major UK banks are in trouble with Royal Bank of Scotland and Lloyds bank closer to full nationalization. Barclays Bank has now been put next inline to need a lot of support and Hong Kong and Shanghai Bank (mainly Asian) have seen their share price collapse in recent weeks.


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## alwaysLearning (9 March 2009)

noirua said:


> Depending on your point of view you may or may not think that the problems with UK Banks will come to shore in Australia.
> 
> All the major UK banks are in trouble with Royal Bank of Scotland and Lloyds bank closer to full nationalization. Barclays Bank has now been put next inline to need a lot of support and Hong Kong and Shanghai Bank (mainly Asian) have seen their share price collapse in recent weeks.




I don't think that the problems associated with UK banks will hit AUS.

The reason is that AUS Banks didn't buy into the whole toxic asset thing as much as overseas banks. Furthermore we have a full gov backed gaurantee.

Also Aus banks are now within the top 20 banks in the world in terms of being 'well capitalised'.


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## doctorj (9 March 2009)

alwaysLearning said:


> The reason is that AUS Banks didn't buy into the whole toxic asset thing as much as overseas banks.



The phrase 'toxic asset' is just a meaningless media catchphrase to help punters picture the crisis.  Securitisation aside, wasn't the large house price increases, followed by a big fall the first step of the crisis? See below for how Aussie house prices have grown vs the US and the UK.

Make no mistake, the same problem exists down under - as does securitisation.  Punters were being lent 90-105% of the value of their security at the TOP of the market and most of the way there.  I'm sure mid-tier banks such as BoQ (I know Home used to) rely on securitisation for funding.  What's their future now?  Are 'the big 4' immune to contagion and immune to falling home prices combined with increasing unemployment?  Or is this just another instance of positive cognitive bias?



alwaysLearning said:


> Furthermore we have a full gov backed gaurantee.



Nice, but almost completely unhelpful in so far as it only stops the small % of deposits that would exceed a sensible limit from migrating elsewhere.  Furthermore, the reality is the government couldn't hope to make good this promise if the guano really did hit the fan and a big 4 bank failed without significant help from the World Bank and IMF.



> Also Aus banks are now within the top 20 banks in the world in terms of being 'well capitalised'.



Only because Australia is behind the curve in asset devaluation compared to the rest of the world.  Give it time, it will catch up.


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## tommymac (10 March 2009)

doctorj said:


> Furthermore, the reality is the government couldn't hope to make good this promise if the guano really did hit the fan and a big 4 bank failed without significant help from the World Bank and IMF.




Absolutely correct.

I went to a private seminar with Paul Clitheroe.  Clitheroe actually has a bit to do with Treasury.  A question was asked why the Govt made an unlimited guarantee on all bank deposits (allbeit a fee for large deposits.)

Clitheroe answered, if all the banks collapsed, the Government would not be able to guarantee $20K in each account, so therefore the decision was made to guarantee it all.


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## doctorj (10 March 2009)

tommymac said:


> Clitheroe answered, if all the banks collapsed, the Government would not be able to guarantee $20K in each account, so therefore the decision was made to guarantee it all.



I really hope he's wrong - that's horrific reasoning.


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## sinner (10 March 2009)

doctorj said:


> I really hope he's wrong - that's horrific reasoning.




He's not wrong and we all know it.

How can the Gov here afford to guarantee $100,000 per head? Or any other Gov with their respective limits? 

Only by printing the money. If the banks collapse and the guarantee becomes necessary for people to redeem their savings, there is little chance they will be able to fund this guarantee with government debt and they certainly have no cash on hand for it.

If the only real world way to implement the guarantee is to print money, what difference does it make to guarantee $20, $20,000 or $200,000.

The only saving grace is that savings rates are so low compared to historical levels that even if there is a bank run or collapse, there might not be as much to guarantee as there was say a decade ago.


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## doctorj (10 March 2009)

Sorry - I should have been more clear. I meant I hope he was wrong in relaying their reasoning for the decision to increase cover. 

No deposit system (those with or without explicit sovereign guarantees) could cover the loss of 100% of insured deposits. Most deposit insurance funds have a coverage ratio of around 2%

Deposit insurance is not designed to address systemic risks, it's only designed to cope with an isolated bank failure of a small or medium (in the case of schemes able to fund ex-post) sized bank.


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## DB008 (10 March 2009)

i thought that the bank guarantee was upto $1million per account?

http://www.smh.com.au/news/national...-bank-guarantee/2008/10/21/1224351253351.html

http://www.smh.com.au/news/national...-bank-guarantee/2008/10/22/1224351351209.html


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## Aussiejeff (10 March 2009)

DB008 said:


> i thought that the bank guarantee was upto $1million per account?
> 
> http://www.smh.com.au/news/national...-bank-guarantee/2008/10/21/1224351253351.html
> 
> http://www.smh.com.au/news/national...-bank-guarantee/2008/10/22/1224351351209.html




If it actually gets to the point where these "deposit guarantees" actually DO come into play in a big way, they won't be worth the money they're printed on. 

At that point in time the gummint printing presses will be working overtime to pay Billions to those "owed". What effect then?

Hmmm. Zimbabwe springs to mind. Oodles & oodles of funny-money flooding their market.

Practically everyone there is at least a Multi-Millionaire. 
Oodles of Billionaires too. 
Even plenty of Trillionaires.

But it's worthless Monopoly money or playdough.

Take your pick. 

_"Money - that's what I want". _

Well, it depends on the color of that money and who printed it! 

UK Reserve deputy insists they can control inflation caused by their decision to print oodles. He says in "normal" times, what they are doing would be inflationary, but that they have it all under control now. Yeah, ri-i-ght.

Just like they had this crisis under control all along? What a total bwanker.

Better hope we don't need those guarantees, then.


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## sinner (10 March 2009)

Will Australias big 4 really need support at this point?

They are attracting literally boatloads of overseas money without having to lift a finger thanks to the guarantee.

I saw in another thread about Macquarie, mentioned they had accumulated $12bn in foreign inflows (they provide debt at 30 day rate and get the cash!) since the guarantee.

Imagine what Commonwealth has pulled in if MQG got $12bn!

I think the whole Australian situation hinges solely on employment or lack thereof and interest rates. As long as interest rates remain low and we don't lose too many jobs we can keep the charade going.

If we conservatively guesstimate 1 in 10 job losses was a homeowner who now has to default, it will take a 10-15% jump in unemployment to see the realestate market begin to crack.

Any significant interest rate hike or employment drop will be a very violent reaction I think.


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## Bushman (10 March 2009)

sinner said:


> Will Australias big 4 really need support at this point?
> 
> They are attracting literally boatloads of overseas money without having to lift a finger thanks to the guarantee.
> 
> ...




The quandary for the banks is their trillion-dollar exposure to commercial property - they don't want anymore of it on their books but if they are in a syndicate with foreign bankers wishing to exit, they might have to or trigger a fire sale into an illiquid market. This is where Kruddy's bank has been set up to plug the holes. If Kruddy's vehicle has deep enough pockets, no problem. If no, then you have an issue over the next 12-months (what with billions needing to be refinanced) and you will see equity destroyed. 

Long-term? Well its sweet mate: 
1. Raising plenty through hybrids and off-shore bond issues (AA rating is GOLD); 
2. ressie and commercial oligopoly with all those who relied on securitisation or mortgage funds in the past now needing 'BIG BANK'.
3. There will be no foreign competition for +5 years. They have to finance their sovereign economies first. 

So our Big 4 will be price setters with an avenue to raise capital to plough into the only sure bet in the next five year, China.  

Short-term bumps in the road, long-term quasi government back-stopped behemoths that will screw me and you out of every cent! 

IMO, get on the gravey train in the next while (when prime commercial property settles) cause the operating profits vintage 2012/2013 will be more Penfolds and less cask wine. IMHO only, off course


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## noirua (10 March 2009)

The UK it's reported is piling in about AU$165 billion into Gilt edged stock (Govt bonds), it was reported last Thursday (part of the Bank bailout).  This is already raising the price of the loan stocks and reducing the yield on them. 
UK Pension annuity rates are worked out on the returns from these Gilt Edged Stocks. This is now reducing returns on new annuities very suddenly. Could the same happen in Australia where Kevin Rudd and Wayne Swan are seemingly backing the same policies as the UK?


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## theasxgorilla (10 March 2009)

sinner said:


> Will Australias big 4 really need support at this point?
> 
> *They are attracting literally boatloads of overseas money without having to lift a finger thanks to the guarantee.*




If this is the case, what can we say about the AUD?  Combine the guarantee and this "boatloads of overseas money", and the interest rate premium that Aussie cash is earning, which is likely to keep the money in Aust.  Makes me think that the morons predicting sub-50 US cents are, well, morons.

I'm buying AUD, again...only this time with EUR, instead of SEK.


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## IFocus (10 March 2009)

doctorj said:


> The phrase 'toxic asset' is just a meaningless media catchphrase to help punters picture the crisis.  Securitisation aside, wasn't the large house price increases, followed by a big fall the first step of the crisis? See below for how Aussie house prices have grown vs the US and the UK.
> 
> Make no mistake, the same problem exists down under - as does securitisation.  Punters were being lent 90-105% of the value of their security at the TOP of the market and most of the way there.  I'm sure mid-tier banks such as BoQ (I know Home used to) rely on securitisation for funding.  What's their future now?  Are 'the big 4' immune to contagion and immune to falling home prices combined with increasing unemployment?  Or is this just another instance of positive cognitive bias?
> 
> ...




Nice summary Doc


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