NAB & ANZ now "dogs with fleas"!

[gfresh]

In the medium to long run I never worry about the US, they control just about all technologies and industries worth controlling including IT and even space etc. How can they lose?

Just to note I removed that quote whilst I was checking it, the correct figure I was looking at was the account deficit as percentage of GDP which is -6.3%. This is only behind Spain, Portugal, Greece, New Zealand, Iceland, and Cyprus.

Seeing as I'm hogging another post, our mortgage debt as a % of GDP is very large, meaning any downturn *could* have as large effect on our major banks as any of those areas that starting to have large problems (US, UK, Spain, Ireland)

 

[michael_selway]

Australia runs a current account deficit of about AUD$2B per month on average, currently adding about AUD$25B per year to our gross foreign debt which is now over AUD$1T (Fraser left $20B, Keating $160B and Howard $600B) the budget surplus is peanuts by comparison.

Hm i thought it said it went into surplus in Apr08?

http://news.smh.com.au/business/trade-surplus-plummets-after-6-year-high-20080703-30zz.html
http://www.abc.net.au/lateline/business/items/200807/s2293999.htm
http://www.abc.net.au/reslib/200807/r268277_1124456.asx

thx

MS

 

[Nicks]

Does the US has Mortgage Lenders Insurance?

If what I have read is correct, Australia has a very small % of low or no doc loans, around 1%, not the 15% in the US.

For all loans where the equity is less than 20%, you pay LMI to protect the bank. So for the bank to loss out, the insurance companies would have to not be able o pay.

Does the US has LMI?

Brett

Brett is 100% on the money here.

If you see the housing market in Australia as a problem (like I and many others do) it is in for a correction, it is not the banks you should be offloading, it is the insurance companies.

Any loans by the big 4 in Australia that are more than 80% of the property value require mortgage insurance.

So for the very small minority of loans that are less than 80% of the value of the property, then the housing market would need to drop more than 20% AND the owner unable to pay the mortgage for the banks to stand to lose any money.

Unfortunately our banks got greedy and half the execs should be sacked imo. They played it very safe in their own backyard, and ensured in a reasonably economically sound Asutralia that all their bases were coverd........ and then went out and poured billions into the US Sub Pribe junk mortgage market. Morons if you ask me.

Anyway I hold ANZ (since 2004) and its now 2008 and I am making a capital loss. That being said, given my reasoning above regarding the Mortgage Insurance, and the fact that the SP has factored in the recent news and probably severely over reacted, the SP makes compelling buying at this price and return. Australian banks are a very profitable business, very sound and even more so now that they have learnt some harsh lessons after being complacent.

Running out and taking your money out of the Big 4, doing a run on the banks, is probably unwarranted. What would Bud Fox do - take it out of NAB and put in in ANZ? lol. Better yet, hide it under the bed! Its safer there than in the bank.

 

[gfresh]

Our banks are safe right now, but the environment could be different in 12-18 months if things kept going south. Who knows there whether it will or it won't, so it's a bit premature to speculate right now.

Here are the latest housing lending figures from APRA, September 2006, but probably as accurate as you're going to find as it's taken from the banks themselves... Worth a read.

http://www.apra.gov.au/Insight/upload/ADI-housing-lending.pdf

As Nick stated, LMI is very high for LVR's above 80%, but I'm surprising it's not quite 100% LMI insured (chart 1). 85-90LVR for instance is about 92% insured .. There are some gaps.

LVR amongst "first time borrowers" (chart 2) is stacked towards much higher LVR's than 80%, however on the positive side this only makes up 10% of total loans made. Of course, newer borrowers are more recent purchasers, and would suffer most with a fall in values.

If we look at the LVR's total value (chart 3), while it's true 75-80% are the majority in the chart below.. If we sum 80->100% LVR, it comes to approximately 22%, not insignificant if those are the ones more at risk.

 

[Muschu]

Brett is 100% on the money here.

If you see the housing market in Australia as a problem (like I and many others do) it is in for a correction, it is not the banks you should be offloading, it is the insurance companies.

Any loans by the big 4 in Australia that are more than 80% of the property value require mortgage insurance.....

Interesting comment Nick - thanks. Any observations on what % of the business of an insurance company, like QBE for instance, is in this particular aspect of insurance?

 

[dhukka]

Anyway I hold ANZ (since 2004) and its now 2008 and I am making a capital loss. That being said, given my reasoning above regarding the Mortgage Insurance, and the fact that the SP has factored in the recent news and probably severely over reacted, the SP makes compelling buying at this price and return. Australian banks are a very profitable business, very sound and even more so now that they have learnt some harsh lessons after being complacent.

Running out and taking your money out of the Big 4, doing a run on the banks, is probably unwarranted. What would Bud Fox do - take it out of NAB and put in in ANZ? lol. Better yet, hide it under the bed! Its safer there than in the bank.

I fear you're making the same mistake with ANZ as you did with BBI. Getting emotionally attached to the stocks you own is never a good idea. We have just seen a series of events play out with US banks and investment banks where they:

denied there was any problems. Then they addmitted problems but that they were one offs, writedowns were taken, denied capital raisings and dividend cuts were needed. Then more writedowns came, CEO's sacked, capital raisings, dividend cuts. More writedowns, more capital raisings, more dividend cuts and in some cases eliminated altogether, government bailouts and bankrupticies.

Where are we at in Australia? Taken some writedowns, a CEO was dismissed yesterday. Does anyone honestly believe the Australian banking and financial sector is not in for a lot more pain in the months and years ahead? Anyone notice SUN's little announcement today? A tripling of bad debts hmmm.

The above is not meant to indicate that we will follow the US exactly with the government stepping in to bail out large Australian financial institutions anytime soon. However if investors should have learned anything in the last 12 months it would be that you cannot believe anything that management tell you. ANZ yielding more than 8% looks great but can that dividend be relied upon?

Here's a predicition, ANZ will be closer to $10 than $15 before all the bad news is out there and I wouldn't be surprised to see it in single digits. NAB won't be much higher with the amount of crap they have yet to mark to market. Dividend cuts and capital raisings are all very much on the table.

 

[Julia]

Dhukka, I was about to make very similar remarks. Thanks for doing it much better than I would have.

Nicks, instead of your current strategy, did you at any stage while ANZ started to fall, consider preserving your capital, and simply standing aside until the bad news is all out there and some confidence returning is reflected in the SP?

If not, can you say why not?
(This is not necessarily a criticism of your approach, but I'm just interested to know why people make the decisions they do, especially with a stock which is falling through the floor like ANZ.)

If I recall correctly you finally sold out of GTP. Can you say what it was that finally allowed you to make that decision? (Bet you're glad now, huh!)

 

[Nicks]

Dhukka (and Julia) - thanks for your fears but you need not worry. The reason I continue to hold a small amount of ANZ shares is for the same reason I bought them to start with - to get a discount on my Margin Loan. Nothing else really. Not emotional love.

Like everyone here I am disappointed with the banks disclosure on the US writedowns (not just the lack of, but what seems to me to have been misleading or simply lies). I cant see how they can justify this and perhaps there is grounds for a class action.

I sold my other Big 4 holding - WBC - at $26.50 for a capital profit about 6 months ago when the credit crunch was becoming more obvious. Dhukka after you bagged BBI - it went up! and I sold for a profit (no love lost lol). So perhaps it was you whom made the mistake in not reading the market correctly? (Julia I sold GTP for a capital profit, not as big as I would have liked though. Do you hold any banks Julia?).

The thing is Dhukka - I guess you would have told someone not to buy BBI at 60c, given your opinion of this stock? Now they are 90c. For a trader this would have been a killing. I guess what I am trying to say is that anyone can say they were wise after the fact. Anyone can bag things after a situation or news develops and especially in a bear market. (BBI has no refinancing in the near future, perhaps why the SP is recovering strongly as 'panic and fear' is subsiding to more rational trading).

The thing to note is that the market is not always rational (especially in Bull / Bear / Dot com / Uranium / Credit Crunch markets) - despite you often having good fundamental observations. Sometimes a trader trades purely on technicals, market mood, sometimes over selling, sometimes reaction to some specific news, and sometimes on fundamentals. Best is a wholistic combination to calculate a trade. Perhaps why I made profit on BBI trades when it was all doom and gloom as far as you were concered.

Anyway back to the topic and less about me. ANZ is strongly pushing growth into Asia (yes they got greedy with US subprime). Is there anything other than the current news out that makes you think ANZ will hit $10? Do you think it is their domestic exposure or their US exposure that will cause this? Do you disagree that Australian banks are not profitable? Given that domestic housing price demand is still high and that the banks cover their asses significantly with LMI, I am not convinced that this will cause much of a contribution to domestic concerns. My 2c.

 

[So_Cynical]

Wait until the banks make public that Australia has a sub-prime problem no less dramatic than the US. All over Australia, in areas like Melton and Rowville in Melbourne, banks are considerably exposed. In recent years:

1. Most mortgages were for 90-110% of the value of the property.
2. Values having dropped 10-30% in outlying suburbs.

The banks, and possibly, government, must be colluding to keep this information out of the media. They are probably hoping to ride out the storm, however there is little hope this happening now. The problem is once the foreclosures start they will severely impact on property values of all outer suburb areas.

According to an OECD report about 2 years ago, property values were about 30% higher than they should be in Australia and so it looks like the market is about to correct this.

Has someone told "Robots" :dunno:

 

[dhukka]

Thanks for the response Nicks but you need to be more careful in your representation of the course of events.

I sold my other Big 4 holding - WBC - at $26.50 for a capital profit about 6 months ago when the credit crunch was becoming more obvious. Dhukka after you bagged BBI - it went up! and I sold for a profit (no love lost lol). So perhaps it was you whom made the mistake in not reading the market correctly?

The thing is Dhukka - I guess you would have told someone not to buy BBI at 60c, given your opinion of this stock? Now they are 90c. For a trader this would have been a killing. I guess what I am trying to say is that anyone can say they were wise after the fact. Anyone can bag things after a situation or news develops and especially in a bear market. (BBI has no refinancing in the near future, perhaps why the SP is recovering strongly as 'panic and fear' is subsiding to more rational trading).

I wasn't trying to 'read the market.' I'm not surprised at all that BBI bounced along with the rest of the market with the April rally. My comments addressed the fundamentals of the business which were and continue to remain poor. The only reason I did that was because you had a false idea of the leverage of the business. I was trying to point out that the business is highly leveraged can barely cover it's interest payments nor can it continue it's payout ratio.

If readers care to go back and look at the BBI thread it's clear that you were recommending the stock based on the alleged solid fundamentals of the business and never referred to it as a trading opportunity, although you did mention it being oversold in March. Nevertheless, on February 4th you wrote:

I hold TCL and believe a stock like this is essential stabiliser in your portfolio. For the reasons already mentioned, it is a solid cash earner - people will always drive. It shouldn't be too affected by the credit markets as they easily get finance due to the fact that they have very low risk steady income.
Excellent stock to be in at the moment and at this price its very attractive and brings a very nice yield alone (plus scope for capital growth up to and above $8 not only because it has in the past but for these same very fundamental reasons).
BBI is another that I categoirise in this basket with more or less the same explanation at the moment..... though slightly more complex it is returning a very nice yield.
Plus, both have potential for 30-40% even 50% capital gains potential to previous prices if the market goes up.
These 2 for a balanced, steady and yield earning portfolio are a good position to hold imo.

BBI price at the time $1.35, price now $0.875

Anyway, if you made money on BBI trades (which of course you can claim you did without any proof) then good luck to you. Clearly from the BBI thread you spent quite an amount of time analysing the fundamentals and were horribly wrong. Your success should be attributed to pure luck not good analysis.

The thing to note is that the market is not always rational (especially in Bull / Bear / Dot com / Uranium / Credit Crunch markets) - despite you often having good fundamental observations. Sometimes a trader trades purely on technicals, market mood, sometimes over selling, sometimes reaction to some specific news, and sometimes on fundamentals. Best is a wholistic combination to calculate a trade. Perhaps why I made profit on BBI trades when it was all doom and gloom as far as you were concered.

Thanks for pointing out the obvious.

Anyway back to the topic and less about me. ANZ is strongly pushing growth into Asia (yes they got greedy with US subprime). Is there anything other than the current news out that makes you think ANZ will hit $10? .

Let's turn that question around Nicks because it really is one that you need to ask yourself. Do you really think the current news out is the last of problems you are going to hear from ANZ given what we know of repeated denials of damaging exposures, assurances that everything was OK and the course of events that has played out in the US with similar financial institutions?

Do you think it is their domestic exposure or their US exposure that will cause this?

both

Do you disagree that Australian banks are not profitable?

Yes I do disagree that they are not profitable. Clearly they are profitable - for now.

Given that domestic housing price demand is still high

Is it? With loan commitments down about 30% year over year?

 

[ROE]

Brett is 100% on the money here.

If you see the housing market in Australia as a problem (like I and many others do) it is in for a correction, it is not the banks you should be offloading, it is the insurance companies.

and the underwriter like monoline goes belly up like in the US
the bad debt fall back to the banks

insurance can only write so much claim after that, they either increase
their premium or don't write risky insurance or goes belly up.

when there is a large claim, banks will have to take some of the heat.

 

[Nicks]

Dhukka - Sorry didnt read all your quotes. Hope you didnt spend too much time digging it all up.

Like I said - "I guess what I am trying to say is that anyone can say they were wise after the fact." aka hindsight.

Good luck. I take it you have shorted ANZ to back up your view of $10 SP?

 

[Nicks]

ROE - the consumer pays the premium.

I agree about the underwriters. Not sure if thats a business i'd want to be investing in atm. I suppose they have factored that into their premiums now.

 

[Julia]

Nicks, thanks for your response.
In answer to your question: no, I haven't held any of the banks for many months. Went mostly to cash at the beginning of January (should have done it before then!) and now hold only FLX. Will not be returning to the market until there is a clear return of sustained confidence, not some itsy bitsy short rally.

 

[dhukka]

Dhukka - Sorry didnt read all your quotes. Hope you didnt spend too much time digging it all up.

I understand, it is often difficult for people to relive their errors, although it can be good therapy.

Like I said - "I guess what I am trying to say is that anyone can say they were wise after the fact." aka hindsight.

No hindsight needed. I have repeatedly warned over last year about the deteriorating economy and the vulnerability of financial and other highly leveraged stocks. It's all over this forum and my own blog.

Good luck. I take it you have shorted ANZ to back up your view of $10 SP?

I don't short stocks, nor do I need to. Not holding dogs is a big enough reward.

 

[Nicks]

What stocks do you hold then Dhukka? And just to clarify, are you saying ANZ is a dog?

 

[lioness]

Dhukka (and Julia) - thanks for your fears but you need not worry. The reason I continue to hold a small amount of ANZ shares is for the same reason I bought them to start with - to get a discount on my Margin Loan. Nothing else really. Not emotional love.

Like everyone here I am disappointed with the banks disclosure on the US writedowns (not just the lack of, but what seems to me to have been misleading or simply lies). I cant see how they can justify this and perhaps there is grounds for a class action.

I sold my other Big 4 holding - WBC - at $26.50 for a capital profit about 6 months ago when the credit crunch was becoming more obvious. Dhukka after you bagged BBI - it went up! and I sold for a profit (no love lost lol). So perhaps it was you whom made the mistake in not reading the market correctly? (Julia I sold GTP for a capital profit, not as big as I would have liked though. Do you hold any banks Julia?).

The thing is Dhukka - I guess you would have told someone not to buy BBI at 60c, given your opinion of this stock? Now they are 90c. For a trader this would have been a killing. I guess what I am trying to say is that anyone can say they were wise after the fact. Anyone can bag things after a situation or news develops and especially in a bear market. (BBI has no refinancing in the near future, perhaps why the SP is recovering strongly as 'panic and fear' is subsiding to more rational trading).

The thing to note is that the market is not always rational (especially in Bull / Bear / Dot com / Uranium / Credit Crunch markets) - despite you often having good fundamental observations. Sometimes a trader trades purely on technicals, market mood, sometimes over selling, sometimes reaction to some specific news, and sometimes on fundamentals. Best is a wholistic combination to calculate a trade. Perhaps why I made profit on BBI trades when it was all doom and gloom as far as you were concered.

Anyway back to the topic and less about me. ANZ is strongly pushing growth into Asia (yes they got greedy with US subprime). Is there anything other than the current news out that makes you think ANZ will hit $10? Do you think it is their domestic exposure or their US exposure that will cause this? Do you disagree that Australian banks are not profitable? Given that domestic housing price demand is still high and that the banks cover their asses significantly with LMI, I am not convinced that this will cause much of a contribution to domestic concerns. My 2c.

Nicks, you are willing to hold ANZ and accept a capital loss in order to gain a discount on your margin loan. Gee, I wonder what your next great idea is??

 

[Nicks]

lioness - Yes, given the given the cost / benefit of it.

 

[dhukka]

What stocks do you hold then Dhukka? And just to clarify, are you saying ANZ is a dog?

I own just 2 stocks, you can see what I hold on my blog and how they've done. I record what I do as I do it.

ANZ is now back at prices that it was in 2001. Is that not a dog of a performance? I believe, maybe wrongly, that the headwinds facing ANZ and other financials over the next couple of years will mean that they will continue to have dog like performance for a while yet.

Just to be clear, I'm sure you'll be able to point out in the coming months times when the stock rallies and you could have made profits by trading it and that I was wrong. However as an 'investor' that doesn't really interest me.

 

[dhukka]

Dhukka - Sorry didnt read all your quotes. Hope you didnt spend too much time digging it all up.

Interesting that I got 2 comments on my blog yesterday. I say interesting because I rarely get more than 1 per fortnight. However the author was fairly unoriginal leaving the exact same comment on both posts. Here is the direct quote:

All doom and gloom. I'll laugh at you when things pick up. Hey - according to you - the whole world will stop!!!! You dont know jack. I bet you wont even show this comment.

The comments are even more interesting given the course of this thread over the past 24 hours. So I can only conclude Nicks that 1) you did read all my quotes and 2) they were accurate enough to make you post childish remarks on my blog.