Time to look at the banks again?

[alex keaton]

Interesting article from Kohler regarding the Aussie banks.

They are making great margins on loans.

I get the the feeling that when the market does turn the banks will jump 30-40% in the space of a few weeks.

Which bank is the preferred option?

Alex



The banks are in Kevin heaven

Australian banks have issued about $40 billion worth of government guaranteed, AAA-rated bonds in five weeks – two-thirds of the amount they raised from global markets in the whole of 2007.

http://www.businessspectator.com.au/bs.nsf/Article/The-banks-are-in-Kevin-heaven-$pd20090116-NBQUW?OpenDocument&src=sph

 

[MrBurns]

Interesting article from Kohler regarding the Aussie banks.

They are making great margins on loans.

I get the the feeling that when the market does turn the banks will jump 30-40% in the space of a few weeks.

Which bank is the preferred option?

Alex

The banks are in Kevin heaven

Australian banks have issued about $40 billion worth of government guaranteed, AAA-rated bonds in five weeks – two-thirds of the amount they raised from global markets in the whole of 2007.

http://www.businessspectator.com.au/bs.nsf/Article/The-banks-are-in-Kevin-heaven-$pd20090116-NBQUW?OpenDocument&src=sph

Yes I saw that and thought the same thing, they are scheming profit addicts with no morals who would sell their own grandmother down the river to make a buck, perhaps we should start buying in ?

 

[Frank D]

Technically No!

Fundamentally Not yet.

If and when the Financial Index is trading around 2900, you might begin to think about moving into long term holdings.

The big four are just chewing up and wiping out all the other players, and eventually they will come out bigger and stronger...

Just my thoughts...

 

[nomore4s]

I agree with Frank, not yet.

 

[Agentm]

same..

too soon.. much later imho

 

[MrBurns]

Put the cheque book away for now Smithers..................

 

[Buddy]

yes, I have been think the same thing. I rather fancy NAB. At these levels banks are paying around 9% FF. Not bad, and difficult to see profits eroding that much, after all they are barstards aren't they? Instead of putting the money in the bank, why not buy the bank. However, I do agree that it is probably not quite the right time yet. We have 4-5 months (around May/June isn't it?) before divs are paid and plenty of time to review. I suspect that when they do start to move up it will happen very quickly so one needs to be vigilant.

 

[gfresh]

I was thinking it might be time to tip *some* funds in, but I'm still too cautious to go all in at this point. I'd want to see the final impact of all these centros', b&b's, etc on the bottom line first, and there may be more to come.

With much of the alternative providers now squashed, when they do come back, they may have greater avenues for profits however.

It will be a very different environment that they operate in the coming years, may not be the same as the "old days".

 

[Julia]

Put the cheque book away for now Smithers..................

This made me laugh.

My term deposits mature early April. Given the cash rate is likely to be further down by then, I'll probably put some into the banks then iff they hold the dividends at the present level.

 

[IFocus]

2009 will see further contraction in the economy as it all starts to bite and with it bad loans mounting on the balance sheets.

Not sure about where you guys are but around here they have built lots and lots of retail stores I expect to see a few empty buildings as the year progresses and with that stress on commercial loans.

One last thought all the mainstream economists have consistently underestimated the rate of decline in 2008 in other words they are behind the curve so more surprises to the down side I think.

 

[drsmith]

With the 1987 stock market crash and subsequent economic downturn Westpac and ANZ did not confess to all their sins (bad debts) untill 1992. If memory serves me correct their share prices bottomed that year, 5 years after the initial crash. NAB fared better as it had less bad debts from that economic downturn. The privatisation of CBA did not begin until 1991.

If the above is any guide buying bank shares now is a case of judging which bank(s) have the best loan book.

 

[Sean K]

I've taken a stab at picking a bottom ish on WBC and CBA. Both still green, just, and will sell when they tell me to sell.

 

[cutz]

I was just a kid at the time so i wasn't paying to much attention but apparently Westpac actually nearly went under.

Anyone recall what happened ?

 

[nunthewiser]

Keep your Big 4


Bendigo for this duck , own a small parcel at 10.09 from other day

wants more under 10 ...9.50 would be fine

will buy at 5 % intervals below that

viewed for a LONG TERM hold

this correction isnt finished yet guys , personally think theres no hurry for bank buying

avaniceday

 

[cuttlefish]

I won't be going near the banks yet - though the govt guarantees and capital raisings are a positive for them - but the fact that they need them indicates the times we're living in.

Not sure what all this government backing does to the governments credit rating (and implicitly the AUD) - particularly if even with all of that cash they still find their capital adequacy being eroded as more businesses go to the wall.

We haven't had the results of unemployment feed through, or the inevitable declines in retail spending as people tighten belts. Commodities are also not in recovery mode yet. This will all feed on itself for a while and I find it hard to see how the banks are going to maintain dividends - though maybe some of this capital raised through govt backed bonds can be spent on the divvies as well.

It will be very interesting to see where the Aussie economy heads over the coming year - I'm not optimistic but I'll be happy to be proven wrong. It will also be interesting to see how the Aussie dollar tracks.

With the 1987 stock market crash and subsequent economic downturn Westpac and ANZ did not confess to all their sins (bad debts) untill 1992. If memory serves me correct their share prices bottomed that year, 5 years after the initial crash. NAB fared better as it had less bad debts from that economic downturn. The privatisation of CBA did not begin until 1991

exactly - we're still in the early days of this imo - we haven't had the actual pain occur yet - we're just feeling a bit feverish and thinking we're probably about to come down with something - the full blown flu hasn't even set in yet.

 

[drsmith]

I was just a kid at the time so i wasn't paying to much attention but apparently Westpac actually nearly went under.

Anyone recall what happened ?

From wikipedia

1992: WBC recorded a 1.6 billion dollar loss, which at the time, was the largest loss for an Australian corporation. In this environment, the Bank dismissed staff and raided the superannuation[citation needed] to sustain its viability. In the process WBC came close to insolvency, and slipped from being Australia's largest to third largest bank.[citation needed]

1992 was the first time I entered the share market and one of the shares I purchased was Westpac. Along with the above loss Westpac also announced a massive rights issue (1 for 3 I think) to shore up it's balance sheet. Fortunately for the bank it was underwritten as the share price soon sank below the rights issue price. As part of the above capital raising, Westpac promised an annual dividend of $0.24 per share which was soon cut to $0.12 per share.

Some interesting underwriters emerged as part of the above capital raising. Pioneer International was one and I had shares in that too. Pioneer stuck more closely to it's core building materials activities after that little distraction.

Kerry Packer also purchased a sizable stake of Westpac around the time but did not hang around for long.

The following table shows how dramatically Westpac's dividends declined between 1991 and 1993 and interestingly how quickly they recovered in subsequent years.

http://www.westpac.com.au/internet/publish.nsf/Content/WIICSS+Dividend+Information

NAB and ANZ also cut their dividends in response to that recession although in the case of NAB the dividend reduction was less than ANZ's or WBC's.

http://www.anz.com/aus/shares/services/dividends/DividendHistory.asp
http://www.nabgroup.com/0,,32876,00.html

I ultimately sold Westpac (and Pioneer) for a profit but the ride was perhaps a little more interesting than I would have liked. A large portion Westpac's $1.6 billion loss above was due to writedowns on commercial property loans.

 

[Big_Daz]

With the 1987 stock market crash and subsequent economic downturn Westpac and ANZ did not confess to all their sins (bad debts) untill 1992. If memory serves me correct their share prices bottomed that year, 5 years after the initial crash. NAB fared better as it had less bad debts from that economic downturn. The privatisation of CBA did not begin until 1991.

If the above is any guide buying bank shares now is a case of judging which bank(s) have the best loan book.

I agree with the theory here...we haven't (in my opinion) seen the end of corporate collapses. Hence the banks may still have some more bad debts to record. The banks are looking good but in time they will look great.

 

[doctorj]

No no no no no (well, there may be a swing up, but the fundamentals aren't there).

These are largely my own thoughts on the matter and please don't consider it as advice to buy, sell, hold or scratch your chubby butt.

The spreads banks are able to achieve on their loan book at the moment are only half the story. In fact, if you think about it widening credit spreads are exactly what you'd expect given the current financial conditions and do not represent a free lunch for the banks. In my very humble and generally ill-informed position, widening loan margins reflect (a) increased counterparty credit risk and (b) relative scarcity of funds.


For me (a) is considerably more serious as it suggests an increased likelihood of writeoffs on the existing loan book. If 2008 was the year of the credit crunch, 2009 will be the year of declining asset quality. While the lending practices in Australia across the whole book were much more robust than the US, the other side of the rising coin lifting all boats is when the tide goes out, everyone suffers. Think GTP, ABC etc.

(b) is considerably more minor, but at the end of the day, banks are going to be more selective in the business they write. Or atleast they should be. Almost no surer way to spot a bad bank than to look for outliers in asset growth - they're probably writing busines others are ignoring.

 

[nomore4s]

(b) is considerably more minor, but at the end of the day, banks are going to be more selective in the business they write. Or atleast they should be. Almost no surer way to spot a bad bank than to look for outliers in asset growth - they're probably writing busines others are ignoring.

This is starting to play out imo.

Went to our accountant (business) yesterday and he said all of his mortgage broker clients are now only getting about 15 out of 100 applications approved for home loans. Also applications are taking alot longer to go through.

Looks like the banks are starting to be a lot more selective.

 

[noirua]

A bit of a warning. I notice all the UK quoted banks did poorly last week, Barclays -45%, Royal Bank of Scotland -34%, Lloyds TSB -25% and HSBC -15%.
Anglo Irish Bank was nationalised by the Irish Government as confidence was increasingly being eroded.

Aussie banks have too many ifs and buts and are only for the brave.