Australian Banks exposure to bad debts

[Knobby22]

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

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

 

[Uncle Festivus]

..........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!.

 

[Mofra]

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.

 

[Mofra]

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

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.

 

[doogie_goes_off]

Be more worried by newer lenders like ING and AXA

 

[Uncle Festivus]

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

 

[Uncle Festivus]

Today the big Mac, tomorrow NAB?

 

[Uncle Festivus]

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

 

[dhukka]

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.

The interest-rate banks charge each other plunged 15 basis points from an 11-year high of 7.06 percent yesterday after the Reserve Bank of Australia said in a statement today it will buy top-rated bonds backed by mortgages. Asset-backed commercial paper and bank bills will also be eligible for repurchase agreements used to add cash to the financial system.

The move increases funds available to banks and supports the market for asset-backed debt in Australia, where credit markets have been roiled by losses related to debt backed by loans to U.S. homeowners. National Australia Bank Ltd. yesterday said an affiliate had been unable to refinance A$6 billion ($4.9 billion) of loans. The nation's lenders are being hurt because of their dependence on global capital markets for funds, Moody's Investors Service said in a report.

``This will put a bit of calm back into the markets and improve the liquidity situation,'' said Mark Bayley director of credit and structuring at ABN Amro Holding NV in Sydney.

The Reserve Bank yesterday left the overnight cash rate unchanged at an 11-year high of 6.5 percent. Central banks typically buy government securities in so-called repurchase agreements, or repos, for a set period to bring money market rates closer to their targets. At maturity, the securities and the cash are returned to the central bank.

`Helps the Markets'

``Obvious concerns and volatility in the credit markets'' triggered the central bank's decision to widen debt buying, said John Broadbent, head of domestic markets department at the Reserve Bank in Sydney. ``We need to make sure what we are dealing in, helps the markets.''

National Australia Bank, the nation's largest, moved A$6 billion of loans onto its balance sheet after the unit holding some assets was unable to refinance in the short-term debt market, the Melbourne-based bank said in a presentation to investors in London yesterday.

Australia & New Zealand Banking Group Ltd., the third- largest, said Aug. 30 its margins have narrowed as much as 25 basis points, which may ``put upward pressure on mortgage rates.'' A basis point is 0.01 percentage point.

Bank of Japan

The Bank of Japan refrained from adjusting funds in the financial system today. In Japan, the rate for overnight call loans between commercial banks and other financial institutions in Japan rose to 0.49 percent as of 12:13 p.m. in Tokyo from 0.42 percent yesterday, according to brokerage company Tokyo Tanshi Co. That's still below the BOJ's target of 0.5 percent.

Companies in the Asia-Pacific region are not affected by the credit market rout, according to a report by Moody's yesterday. The region's borrowers will not face a shortage of funding because they can continue to rely on bank lending and domestic bond markets, the report said.

``Moody's is seeing no evidence so far of a reduction in the ability or willingness of the banking sector in Asia to lend to corporates,'' Sydney-based Brian Cahill and Hong Kong-based Clara Lau, wrote in the report.

Companies in Australia may face rising borrowing costs because they actively tap commercial papers for their funding and banks rely more on the capital market than other Asian lenders, which depend more on bank deposits, the report said.

Yields on three-month U.S. asset-backed commercial paper rose on Sept. 4 to 6.16 percent, the highest in more than six years, according to data compiled by Bloomberg.

Funding Costs

The three-month London interbank offered rate for dollars, or Libor, increased to 5.72 percent, the highest since January 2001, from 5.36 percent at the end of July, the British Bankers' Association said yesterday.

The spread for three-month Australian dollar Libor over the RBA's benchmark rate touched 56 basis points yesterday, the widest since February 2000. It has averaged 12 basis points more than the key rate in the past five years.

Yields on three-month U.S. asset-backed commercial paper rose on Sept. 4 to 6.16 percent, the highest in more than six years, according to data compiled by Bloomberg.

 

[Uncle Festivus]

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

 

[noirua]

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.

 

[ROE]

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

 

[Uncle Festivus]

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.

 

[Aussiejeff]

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

 

[Aussiejeff]

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

 

[noirua]

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?

 

[Aussiejeff]

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......

 

[Aussiejeff]

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

 

[disarray]

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?

 

[numbercruncher]

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 ...