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

[MrBurns]

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

 

[sassa]

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

 

[sammy84]

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.

 

[MrBurns]

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.

 

[Nyden]

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.

 

[dirty_harry]

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 !!

 

[drsmith]

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!

 

[Happy]

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.
The bank says it should deliver net profit after tax of $2 billion for the first half of the financial year.
It says that is 20 per cent above what the market is forecasting, but still 16 per cent lower than its last first half result.
Commonwealth Banks chief executive Ralph Norris says the bank's position as a stable institution has helped it attract deposits and improved demand for credit amid the economic uncertainty.

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

 

[drsmith]

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.

 

[tigerboi]

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.

 

[MrBurns]

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

 

[knocker]

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.

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 ;-)

 

[doctorj]

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

 

[Sean K]

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?

 

[UBIQUITOUS]

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.

 

[Glen48]

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

 

[johenmo]

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.

 

[vincent191]

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

 

[nulla nulla]

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.

 

[doctorj]

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.

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

So have all other banks in developed markets.

(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.

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.

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..