# It's not over for the banks yet...



## MrBurns (2 February 2009)

Perhaps rethink your bank stocks after reading this - 

http://www.businessspectator.com.au/bs.nsf/Article/Time-to-spill-the-beans-$pd20090202-NV3QR?OpenDocument&src=kgb


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## sassa (2 February 2009)

The opening statement of the report-


> It's about time we called a spade a spade. We are looking at the biggest concealment of capital losses the world has ever seen.



-reminded me of a comment I read yesterday from-
http://www.jessescrossroadscafe.blogspot.com/


> One of the so-called model banks is on a don't ask/don't tell policy; the Fed simply cannot handle another mega-catastrophe while they wrestle with the fully-insolvent among the top five. (Note: think derivatives). The word on the Street is to keep everything bad off the radar to buy time


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## sammy84 (2 February 2009)

MrBurns said:


> Perhaps rethink your bank stocks after reading this




Are you referring to Aus bank stocks or Global banks. Nothing in this article would deter me from investing into Aus bank stocks after reading it.


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## MrBurns (2 February 2009)

sammy84 said:


> Are you referring to Aus bank stocks or Global banks. Nothing in this article would deter me from investing into Aus bank stocks after reading it.




I consider any event of this magnitude overseas will impact here some how.


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## Nyden (2 February 2009)

My concern about Aussie banks, is that the housing crash is only just getting started here, and we have a fairly strong potential for extremely high rates of unemployment. So, one must wonder, how long until our banks are in the same shape as those of the rest of the world?

Can anyone really imagine how bad it could get? Unlike the US, folks here cannot simply walk away from their mortgage, and if they're forced to sell for a substantial loss, and have no proper job to speak of ... my goodness, can you imagine the bankruptcies? Could get very nasty, very quick here.

I wouldn't be at all shocked to see 1.5-1.75% interest rate cut, as well.


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## dirty_harry (2 February 2009)

What's saved Australia is the regulation of the banking system. Stats are published online:
http://www.apra.gov.au/Statistics/Monthly-Banking-Statistics.cfm

Luckily as a result we didn't get too heavily into CDO's (i.e. US junk rated AAA and flogged worldwide). This US junk has wiped out Iceland, UK, Ireland, and made most US banks insolvent. Investment bankers in London and New York were out of control. They were supposed to be brilliant and innovative Havard types, but were simply slick salesmen leveraging too much and generating liabilities. Many should be in jail.

2008 our banks were still making huge profits, while US, UK and European banks were making massive losses. Time will tell about our local assets in 2009, but the banks have been preparing. CBA reported today still having provisions well covered by earnings. However 2009 is very uncertain. Interesting times !!


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## drsmith (2 February 2009)

MrBurns said:


> Perhaps rethink your bank stocks after reading this -
> 
> http://www.businessspectator.com.au/bs.nsf/Article/Time-to-spill-the-beans-$pd20090202-NV3QR?OpenDocument&src=kgb



My link is gloomier than yours.

http://www.theaustralian.news.com.au/business/story/0,28124,24993051-5012439,00.html

So there!


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## Happy (3 February 2009)

> From ABC, 2 Feb. 09
> COMM BANK PREDICTS $2B PROFIT
> 
> The Commonwealth Bank has announced that despite the challenging economic conditions it is expecting to post a profit well above market expectations.
> ...




I don't get it, banks get massive help but it doesn't stop them to make massive profit, possibly to repay the debt


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## drsmith (3 February 2009)

The bank sector is partying today but how long will it last ?

The final paragraph in CBA's media release from yesterday is not exactly positive.


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## tigerboi (3 February 2009)

*Re:More exploding arms(ARM)to come mid "09*

Taken from your link drsmith...

"The banks on Wall Street are still hiding losses which is why there is so much interbank nervousness. To simplify the situation, imagine Mr Smith is the CEO of Global Bank. Mr Smith knows exactly how much he is concealing from the market but he thinks the CEO of Mega Bank, Mr Jones, is concealing a lot more. Those entrusted with regulating the US and European sharemarkets have a lot to answer for."

There are still more losses from ARM(auto reset mortgages re:8% to 13%) to come,as it says banks are still hiding losses hoping to cover them...

checkout the 4 corners transcript...http://www.abc.net.au/4corners/content/2008/s2389716.htm

this also...http://www.moranlaw.net/blog/?s=mess

Mortgage mess: I’m so mad I want to sue someone
Dec 29, 2007 
Pondering, Real property & mortgages 

Usually, I try to be the voice of common sense, conservation of energy, and moving on after a debacle. The client I saw the other day had the warrior side of me overwhelming the lawyer’s logic.
The facts: the client, an immigrant carpenter with limited English literacy, “invested” in a rental house with partners who bailed on him. The loan was the typical sub prime, adjustable rate loan where the rents on the house could never have covered the debt service.
Then the “friendly” real estate professional helped him borrow some money on the rental to pay the closing costs on a no-money-down purchase of a home for himself. Realtor gets a real estate commission on the purchase and a fat commission on the two loans to buy the house. Again there were supposed to be partners who would contribute to the debt service and own some interest in the property. None of it was in writing, others bail, and again my client is left holding the mortgage “bag”.
Meanwhile, the home’s value goes down and the mortgage payments go up. While the client is willing to walk away from the rental, some self interested “expert” tells him that if he defaults on the rental mortgages, he will lose his home, on which he is current, even though the property is upside down. He works huge amounts of overtime, loses sleep, figures he will lose everything. He’s near tears when he sees me.
The good news in this scenario is, such as it is, that all the client has invested in these deals is about $15,000, and a year and a half of inflated mortgage payments on “investments” that are worthless now, and probably when purchased.
When I analyzed the first loan on the home, I calculated what the mortgage payment would be if, instead of an exploding ARM, it were a conventional, 30 year fixed rate note at 6.5%. The answer was that the monthly mortgage payment on a loan of that size, if it could be restructured, equaled his *gross monthly income*! What lender makes such a loan?
The rational part of me wants to tell the client, take your lumps, be glad you didn’t lose any more than you did, following the American dream. The warrior side of me says, who were this guy’s friends who engineered these “deals”, with commissions to themselves? Who gets away with misrepresenting the consequences of a foreclosure on the rental? Who were the lenders who participated in exploiting a simple man who couldn’t read the relevant documents?
Again, my advice will probably be to live in the property payment free til the lender forecloses . But my personal inclination is to sue the assorted bastards involved in this mess.


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## MrBurns (3 February 2009)

I reckon a billion is wrth 20 points on the ASX for 3 days, how's that ?


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## knocker (3 February 2009)

*Re: More exploding arms(ARM)to come mid "09*



tigerboi said:


> Taken from your link drsmith...
> 
> "The banks on Wall Street are still hiding losses which is why there is so much interbank nervousness. To simplify the situation, imagine Mr Smith is the CEO of Global Bank. Mr Smith knows exactly how much he is concealing from the market but he thinks the CEO of Mega Bank, Mr Jones, is concealing a lot more. Those entrusted with regulating the US and European sharemarkets have a lot to answer for."
> 
> ...




Sad thing is when its time for him to vacate, he probably just goes back home and leaves the mess behind. 

Good opportunity to buy ;-)


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## doctorj (12 February 2009)

If you believe the IMF, it really isn't over yet. Units are USD (billions).

Data Source : International Monetary Fund, “Global Financial Stability Report”, October 2008


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## Sean K (12 February 2009)

doctorj said:


> If you believe the IMF, it really isn't over yet. Units are USD (billions).
> 
> Data Source : International Monetary Fund, “Global Financial Stability Report”, October 2008



So, if we come in under than expected the sector has bottomed and banks will rally from here?


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## UBIQUITOUS (12 February 2009)

kennas said:


> So, if we come in under than expected the sector has bottomed and banks will rally from here?




Also, seeing that stock prices are forward looking, maybe the current share prices are factoring in further writedowns.

However, I am of the firm belief that the losses which will be incorporated from real estate sector lending, will really hurt our banks badly.


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## Glen48 (12 February 2009)

The current value of OZ R E is $520Billion if house prices drop by 50%+ were will the Banks be?


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## johenmo (12 February 2009)

It's what's yet to be revealed that's the worry.  To think that they have disclosed all bad debts is too optimistic.  Mid 2009 will be a better place to make a decision - based on the proviso that the long term prophecies (sideways for 5 - 10 years) aren't correct.


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## vincent191 (12 February 2009)

Glen....don't you worry about the banks. If house prices drop by 50% I won't be here.


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## nulla nulla (13 February 2009)

Comparing Australian Banks with the worst International or foreign banks is not a basis for deciding Australian Banks are too risky. Australian Banks are regulated (as to the extent of funds they have to hold at any one stage and other bits and pieces) which is one of the reasons they are in the top 20 banks in the world. Australian Banks have already made provision for billions of bad and doubtful debts (some of which has not gone bad yet) and they are still postioned to make profits going forward in a time when the world is going into recession. The Australian banks may not be bullet proof, but for a long term safe haven they are hard to look past.


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## doctorj (13 February 2009)

nulla nulla said:


> Australian Banks are regulated (as to the extent of funds they have to hold at any one stage and other bits and pieces)



So are all other banks in developed markets.



nulla nulla said:


> Australian Banks have already made provision for billions of bad and doubtful debts



So have all other banks in developed markets.



nulla nulla said:


> (some of which has not gone bad yet)



Under IFRS they can only make specific provisions.  They can't do it 'just in case' as you suggest here.



nulla nulla said:


> and they are still postioned to make profits going forward in a time when the world is going into recession.



So are all other banks in developed markets - interest rate spreads will be quite lucrative for banks that stay around.  The big issue will be finding the asset quality.



nulla nulla said:


> The Australian banks may not be bullet proof, but for a long term safe haven they are hard to look past.



I agree they're well positioned, but I disagree with your reasoning..


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## nulla nulla (13 February 2009)

I don't have a problem with you disagreeing with my reasoning. The bottom line is that the Australina banks, in my opinion, especially CBA, WBC and NAB are well positioned to ride out the economic crisis and will ultimatly prove to be sound investments at these levels.


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## noirua (31 March 2009)

Are banks worldwide now about to suffer the second wave problems on better quality mortgages than sub-prime?  The next blow is similar to the Alt-A disaster building up in the States, where previous lenders were thought to be unaffected by the contagion.

The collapse of Scotland's largest building Society, The Dunfermiline, once again means the UK takes on more debt, this time it's A$3.5 billion. 

Spain is bailing out its bank, Caja Castilla of Spain, which will cost the Spanish tax payer AU$18 billion. This is the first major recent Bank collapse in Spain, and is due to the badly hit housing sector. Strong banks, such as, Santander and BBVA are now in the spotlight.

Aussie Banks are often trumpeted as all sound, just the same as Spain's were, and time will tell?

On an interesting note: Tesco, the UK supermarket, is also to become a new bank. They will open 30 Banks in major branches by the end of the year. 
Woolworths and Coles may follow the lead in Australia, and put pressure on the majors, maybe.


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## glads262 (31 March 2009)

I see a positive for the Aus banks being the stimulus payments. Most dual income households with a mortgage will get about $1900. This is enough to cover the mortgage for 1-2 months?? Mortgage payments have already dropped in half. If a dual income household were to lose one income (ie higher unemployment which is coming) then they SHOULD have a buffer in lower mortgage payments, plus $2000 in the bank to help out for the first 6 months or so. 
After that, hope the economy picks up and they find a job. (there are plenty of jobs out there - just not where people are trained - ie you see the unions whinge when 1000 people in manufacturing get retrenched saying they will never find another job - maybe not in manufacturing but try looking elsewhere?)

The major downside for Aus banks is the commercial property market. This has yet to hit the fan, and Aus banks have already said they are overexposed - this is why Ruddbank is being setup because they will not lend further to commercial property. If these properties start to collapse - probably due to Industry super fund selling - then there will be trouble.

Industry super funds are overexposed to unlisted commercial property. This is why they have outperformed over the past year.


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## sinner (2 April 2009)

Hi guys,

I thought this chart was very apt for the thread title. 

SKF (UltraShort Financials) has not been this low since Sept '08.

Will be watching tonights NYSE session very closely to see if this instrument will close above or below resistance.


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## Uncle Festivus (2 October 2009)

Time to materialise profits perhaps? Even the dreaded S word - short?



> Sydney - According to Restructuring Works, a business specialising in corporate restructuring, its fourth quarterly Business Stress Report reveals that the cost of insolvencies to Australian Banks rose dramatically in the June quarter. The rise was a surprise as it had appeared that the cost of insolvencies had peaked last December but instead they have resumed their upward trend.
> Key findings from the report:
> 
> 
> ...



/news-room/cost-of-insolvencies-tops-32-billion-for-australian-banks.htm


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## Uncle Festivus (2 October 2009)

And a nice chart to go with it....... not that it's anything to worry about


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## gfresh (2 October 2009)

Nice backward looking data...While it may be the most recently available collated data, things have changed little since then in terms of local corporate default, and it takes time for things to work through the system. 

While I'm sure the overseas banks still have plenty to worry about.. the Aussie ones still are sitting fairly well on the recession that never happened.



> Sanderson commented: “There are currently two factors at play. Firstly, it simply takes a long time for either the directors of a company in financial trouble to deal with the issues or for creditors to lose patience and take legal action. Secondly, the key driver of insolvency numbers in small and medium size companies is the ATO but in the past 6 months the ATO has actively encouraged repayment arrangements with businesses rather than pursuing insolvency proceedings. Many of the companies being given some latitude will still ultimately fail.”
> 
> Sanderson concluded: “Putting the above together, I think we are likely to see a change in the mix of companies facing insolvency. We’ve seen the big companies with large debts hit the wall. Going forward we are likely to see an increase in the number of companies facing insolvency but they will be small and medium sized companies with correspondingly smaller debts.”


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## Uncle Festivus (3 October 2009)

gfresh said:


> While I'm sure the overseas banks still have plenty to worry about.. the Aussie ones still are sitting fairly well on the recession that never happened.




Then why is their impairment charges now $32BILLION??

*The total for the year to June 2009 has increased to $32.2 billion. That compares to an average of around $4.4 billion per year for the years 1995 to 2008.*


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## Uncle Festivus (3 October 2009)

gfresh said:


> Nice backward looking data...While it may be the most recently available collated data, things have changed little since then in terms of local corporate default, and it takes time for things to work through the system.




Backward looking? So we have a doubling of individual provisions from $9.4B to $17.7B in just 12 months? You learn something every day.

There are two broad types of provision, both of which have risen since the onset of the financial turmoil. The first is ‘individual’ provisions that are established when a bank identifies a specific loan as being ‘impaired’, in that it is *unlikely to be repaid in full* and the value of collateral is not expected to be enough to cover the outstanding amount. The second type is ‘collective’ provisions that are held against currently unidentified losses on portfolios of loans with similar risk characteristics, and against a general deterioration in the loan book. 

For the four major banks, total provisions stood at $17.7 billion as at their latest reporting dates (end March 2009 for three of these banks and end June for the other), compared to $9.4 billion a year earlier (Graph A1). Around half of the increase was in individual provisions, which rose to $5.8 billion as at the latest half year. 

Source:RBA report Financial Stability Review September 2009


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## HighRyder (4 October 2009)

Haha, interesting stuff in this thread..


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## GumbyLearner (4 October 2009)

Rollover the Movie 1981 & GFC compilation mix


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## Julia (5 October 2009)

Happy said:


> I don't get it, banks get massive help but it doesn't stop them to make massive profit, possibly to repay the debt



What massive help have the banks had?
As far as I know, they have in fact been paying the government for the privilege of the guarantee.  None of our banks have been bailed out by the taxpayer.


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## Gamblor (5 October 2009)

Julia said:


> What massive help have the banks had?
> As far as I know, they have in fact been paying the government for the privilege of the guarantee.  None of our banks have been bailed out by the taxpayer.





That's right - the government guarantee stopped the run on them so they never needed the tax payer. I'd say that was quite helpfull for them.


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## nioka (5 October 2009)

Julia said:


> What massive help have the banks had?




The big 4 banks had the government guarantee that the building societies and small banks did not receive. This gave the big 4 an advantage over the others when it came to obtaining funds by allowing them to offer cheaper rates and still attract deposits. Probably worth billions. It also allowed them to buy out or close down opposition in the home mortgage department. These benefits will continue for years to come.


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## Agentm (5 October 2009)

nioka said:


> The big 4 banks had the government guarantee that the building societies and small banks did not receive. This gave the big 4 an advantage over the others when it came to obtaining funds by allowing them to offer cheaper rates and still attract deposits. Probably worth billions. It also allowed them to buy out or close down opposition in the home mortgage department. These benefits will continue for years to come.




correct

i am a little surprised julia doesn't understand the one sided affair that the big 4 have on the opposition

this may help julia

http://www.smh.com.au/business/bulkedup-banks-forget-the-little-guy-20090817-emng.html


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## Julia (5 October 2009)

nioka said:


> The big 4 banks had the government guarantee that the building societies and small banks did not receive. This gave the big 4 an advantage over the others when it came to obtaining funds by allowing them to offer cheaper rates and still attract deposits. Probably worth billions. It also allowed them to buy out or close down opposition in the home mortgage department. These benefits will continue for years to come.




All banks, not just the big four, all building societies and credit unions received the government guarantee.  The big four did get a lower rate of payment to the government.   

During this period I have been shopping around for TD rates and there was no appreciable difference between those offered by the big four and the smaller banks.

So it's quite wrong to suggest the smaller banks and building societies were not beneficiaries of the government guarantee.


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## Julia (5 October 2009)

Agentm said:


> correct



No, it is not correct.  See my reply to Nioka.



> i am a little surprised julia doesn't understand the one sided affair that the big 4 have on the opposition



The only advantage they have had is that the % they pay the government is slightly less than the smaller institutions.  That is very different from saying the government guarantee was only available to the big four.


> this may help julia



I have skimmed through Mr Mayne's article but don't see how it relates to the government guarantee in particular.  It certainly doesn't support your contention that only the big four received the government guarantee.


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## Uncle Festivus (6 October 2009)

nioka said:


> The big 4 banks had the government guarantee that the building societies and small banks did not receive. This gave the big 4 an advantage over the others when it came to obtaining funds by allowing them to offer cheaper rates and still attract deposits. Probably worth billions. It also allowed them to buy out or close down opposition in the home mortgage department. These benefits will continue for years to come.




They have also taken on a larger portfolio of first timers which may haunt them in a year to come?

Julia is correct about the guarantee - the only diff was the monopolistic 4 got a better rate.


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