Time to look at the banks again?

[wonderrman]

Is there any easily accessable up to date information on the big 4's net tangable asset backing per share ?

The info from their latest profit reports is a little dated given capital raisings and takeovers since.

I doubt the banks would probably even now their true NTA backing. All estimates I think are major guesstimates.

 

[drsmith]

I made a ballsup with the Westpac calculation as I forgot to take into account that Westpac offered shares in StGeorge at a ratio of 1.31:1.

NTA/share post merger is estimated to be ~$7.60.

I doubt the banks would probably even now their true NTA backing. All estimates I think are major guesstimates.

Yes, ultimately very dependent on the quality of their loans.

 

[noirua]

Barclays is a big worry as it's paying 14% interest on its US$7 billion loan. The British pound has tanked badly adding to the cost. The companies market cap is now only about US$6 billion above the loan and they seem to need much more.
This loan interest is far above that paid by the average guy in the street.

Barclays Bank's position is in fact worse than I thought.

They have US$4.8 billion of reserve capital instrument loans and US$7 billion of mandatory convertible notes.
Both these pay interest at 14% per annum (16% in the first year) until June 2019.
Barclays market cap was infact £8.4 billion (US$13 billion approx) last Friday.

I suppose if Barclays was not a Bank it would now be close to bankruptcy. In its favour, like Freddy Mac and Fanny Mae, the UK can't let it.

 

[noirua]

Interesting to see if Aussie Banks are affected by the UK Prime Ministers official announcement whilst visiting Egypt, about 60 minutes ago.

Prime Minister Gordon Brown has said he will make an announcement about the UK's Banks tomorrow (Monday), probably before markets open.

Speculation is that the Royal Bank of Scotland may be nationalised. Meanwhile a 70% stake will be taken whilst the nationalisation terms are thrashed out.

A new toxic supporting bank to be setup where banks can place their difficult loans with Government support in return for a form of fee.

Speculation that the overall support package including the recent £37 billion (AU$77 billion) may eventually stretch out to reach £200 billion (AU$420 billion).

 

[noirua]

Link to the announcement to be made by the UK's Prime Minister, Mr Gordon Brown, in London on Monday.
"New bank bail-out to cost billions": http://news.aol.co.uk/new-bank-bail-out-to-cost/article/20090117124758246628573

 

[sinner]

More great news from the banking sector.

How will we be immune from this when our banks fuelled all their growth in the same wholesale debt markets as these countries?

http://www.nakedcapitalism.com/2009/01/british-banks-deemed-technically.html

Of course, it takes one to know one. The no-doubt accurate call on the health of British banks comes from one of their own, Royal Bank of Scotland. Funny how no US bank is willing to make the same call.

From the Independent:

Britains biggest banks are "technically insolvent", Royal Bank of Scotland said yesterday...

Analysts working for RBS, one of several British banks to have received emergency funding from the UK Government last year, told the City that "the domestic UK banks are technically insolvent on a fully marked-to-market basis".

The warning does not mean British banks are about to go bust, because the assessment is purely theoretical, and RBS said the position was "not unusual at this stage in the economic cycle".

However, it will add to pressure on the Government to provide more support for the country's banks...

The value of Barclays fell by a quarter in stock market trading yesterday, amid a series of wild rumours about its finances, although the bank said it saw no need to comment on the drop.

City analysts said the bank had been targeted by traders after regulators lifted a ban yesterday on the short selling of financial stocks. Barclays' share price, along with the value of other British banks, was also hit by dismal news from the international markets...

Treasury officials were still discussing plans to help British banks last night but the proposals are likely to include up to £100bn of new guarantees for the wholesale markets that underpin mortgage and other loans.

Other possible measures being considered include state support to help Britain's largest companies raise their own funds. Another option is to launch a "bad bank" to remove tainted assets from the banks' balance sheets, though while this policy is under consideration, it is thought to remain some way off.

Other proposals include ring-fencing the toxic assets within bank balance sheets. Lord Mandelson, the Business Secretary, has also talked of easing the terms of the Government's £37bn bank bailout in order to kickstart lending. Downing Street made it clear yesterday that the Government remained committed to doing "whatever is necessary to help British businesses and families get through this global financial recession".

 

[MrBurns]

By Alan Kohler.

http://www.businessspectator.com.au

The only thing standing between Australia and the sort of catastrophic mess that Britain and America are heading into in 2009, and that Iceland is in now and that Ireland would be in if it wasn’t part of the Euro, is the state of our banks.

Most of their banks are quite broke; Australia’s are okay … so far.

But the distance between us and them may be less than you think. Without the government guarantee, the big four banks would be totally unable to raise funding from international markets, and since around 40 per cent of bank funds in this country are supplied by wholesale markets, Australian banking would effectively shut down.

What’s more, the banks are playing with fire by not reducing small business lending rates with the cut in the cash rate.

Thanks to pressure from all manner of politicians, mortgage rates have been cut by almost as much as the cash rate (2.75 per cent versus 3 per cent) but business rates have not been reduced at all. This might well turn out to be a self-destructive margin play by the banks.

For the moment, as we reported on Friday, the banks are in Kevin Heaven – but the Kevinless alternative is the hell being suffered on each side of the Atlantic. It has been a horribly dramatic few days.

On Friday analysts at Royal Bank of Scotland said that British banks were “technically insolvent on a fully marked to market basis”.

Also on Friday the government of Ireland nationalised its third biggest bank, Anglo Irish.

Later the same day, the United States Government gave $US20 billion to Bank of America and guaranteed $US118 billion worth of its bonds to keep it afloat, after the bank announced a quarterly loss of $US1.7 billion.

And also on Friday, Citigroup announced an $US8.3 billion loss for the December quarter and a loss of $US18 billion for 2008 as a whole, and CEO Vikram Pandit announced plans to split the bank into two. Bloomberg’s headline on its story about this read 'Citigroup’s Pandit Tries to Save the Little That’s Left to Lose'.

After crunching Citigroup’s quarterly report, an analyst at Deutsche Bank, Michael Mayo, estimated that its tangible common equity is now $US28.9 billion, or 1.5 per cent of its assets. Splitting the bank adds nothing to its equity.

Meanwhile in Iceland, where the banks took on liabilities 10 times the national GDP by betting on Britain’s property bubble, both inflation and interest rates are 18 per cent, and rising. A calamity has been visited upon the people by their bankers. The Observer's Will Hutton commented yesterday that Iceland’s only hope is membership of the Euro, if it can be secured (he says Britain must now join the Euro as well).

In Australia the banks did not gamble with financial derivatives, are not exposed to British and American real estate and did not lend much to sub-prime borrowers.

As we reported on Friday, they are now scooping up plenty of funds from international debt markets using the government guarantee as well as from retail depositors, and they have all raised new equity in the past few months and most have tier-1 capital ratios well above 8 per cent.

But it’s not time to stop holding your breath. The Australian banks are exposed to Australian real estate and they did lend to plenty of sub-prime corporates.

It is a slightly disturbing fact that even though the banks are backed by the government’s AAA credit rating, they are paying 150-200 basis points more than government for the same term debt (3-5 year).

Nobody knows why that’s happening, but it suggests that without the government guarantee Australia’s banks would be raising no funds at all from international wholesale markets. And since they are the only successful Australian borrowers on global markets at present, the credit system would otherwise shut down.

Meanwhile the banks are taking advantage of this market power handed to them by the government by holding business lending rates steady in the face of lower cash rates in order to widen their margins.

This is going to lead to higher unemployment as businesses lay off staff to keep servicing their debt and avoid bankruptcy.

And every percentage point increase in the unemployment rate will increase the rate of defaults in the mortgage book and undermine house prices.

That’s why lowering mortgage rates to assist home lenders but paying for it by maintaining business rates will ultimately be self-defeating.

But at least the banks are still solvent and they’re still lending. Australia’s unemployment rate has only ticked up from 4.4 to 4.5 per cent and house prices have not collapsed, even though they rose more than those in the UK and the US during the boom.

Maybe things will be okay in Australia. Maybe the fact that our banks are still solvent and functioning will keep unemployment down and house prices up which will keep the banks solvent and functioning and keep unemployment down and house prices up which will keep the banks solvent and functioning and keep unemployment down and house prices up…and so on.

Let’s hope so.

 

[Glen48]

I was reading were Citi and Morgan Stanley are looking at combining and calling it Citi Morg.
Whats the long term forecast for the OZ banks one case they were prepared to lend some kid 900K to buy a house they must know by lending money to buy a falling asset is not good business practice.

 

[nomore4s]

I was reading were Citi and Morgan Stanley are looking at combining and calling it Citi Morg.

Is that a joke?

 

[Sean K]

Is that a joke?

I laughed.

 

[drsmith]

Is that a joke?

It would have been a good one for April fools day.

 

[Julia]

An article on likelihood of dividends being cut, even with the banks:

http://business.smh.com.au/business...vidends-20090116-7j4q.html?sssdmh=dm16.356277

 

[drsmith]

Barclays Bank's position is in fact worse than I thought.

They have US$4.8 billion of reserve capital instrument loans and US$7 billion of mandatory convertible notes.
Both these pay interest at 14% per annum (16% in the first year) until June 2019.
Barclays market cap was infact £8.4 billion (US$13 billion approx) last Friday.

I suppose if Barclays was not a Bank it would now be close to bankruptcy. In its favour, like Freddy Mac and Fanny Mae, the UK can't let it.

Even with Friday's profit announcement and more bank bailout money from the British and US Government, Barclays share price is struggling to keep it's head above water after an initial surge.

 

[ROE]

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 ?

I'm way way too young then probably still wet my pants but uncle history tell me it's bad corporate loans that bought them down..

they learn their lessons or maybe not with snapping up the dragon at a premium and they have big mortgage book ....this time the housing may bring them down

I just happen to know someone, CBA and Suncorp wont lend them the money for a property with but dragon did ...hmm wonder if that is a good or bad move and what risk metrics they have in place

 

[ROE]

I doubt the banks would probably even now their true NTA backing. All estimates I think are major guesstimates.

There is no way in hell anyone could accurately calculate banks NTA... if they can they are smoking something...all they can do is estimate with reasonable assumptions

Banks are VERY VERY VERY highly leverage beast and any one bad move could completely wipe them clean of their profit and then some more.

Look at all the banks that miscalcuate sub-prime..they are gone and bankrupt...

Take someone like CBA, it has a loan book of around 480 Billion..it doesn't takes much for **** to hit the fans, all it need is a few percent out of that $480 Billion and you are a goner.

 

[noirua]

How bad a position are Aussie banks really in? If they dare say there's a problem the speculators will be on them immediately.

The UK's Royal Bank of Scotland forecasts a trading loss between AU$17 to AU$19 billion. Write downs will increase the loss by AU$42 to AU$45 billion.

From the above, it does show that Aussie bank write downs could be a problem for the banks.

 

[investorpaul]

By the middle of the year I believe we will have a clearer picture on the whole economic outlook. A few more companies will be forced to admit their mistakes and we might finally be able to work out where the price of securities (including the Banks) lay. I think that once we have this clearer picture that the big 4 could represent a good long term buying opportunity, depending of course on anything that gets revealed over the next 5 or 6 months.

 

[wonderrman]

There is no way in hell anyone could accurately calculate banks NTA... if they can they are smoking something...all they can do is estimate with reasonable assumptions

Banks are VERY VERY VERY highly leverage beast and any one bad move could completely wipe them clean of their profit and then some more.

Yep that's exactly right and that is why I don't like investing in them. They're fragile beasts. I read this good article on the banks and how they lend money. It's a few pages long but worth a look .... http://www.tocqueville.com/article/show/249.

 

[Glen48]

My Mother has money with Challenger and been sweating on a Cheque since December any one heard any thing????

 

[gfresh]

Take someone like CBA, it has a loan book of around 480 Billion..it doesn't takes much for **** to hit the fans, all it need is a few percent out of that $480 Billion and you are a goner.

Yup.. Residential loans will be the one that will show it's hand this year. Doesn't even have to be the doomsday 20-30% falls in residential property, and we're not far away from the US and UK situation. Even a few % fall is already tightening up the banks' lending standards, if it gets worse that tightening will increase. If less and less people able to take out those expensive loans for mid-to-upper level property then the banks are stuck between is stuck between a rock and a hard place between taking on more risk, or foregoing risk and contributing to a market implode.

Such a situation will quickly show who has the dodgiest loans on their books.