I got a similar feeling with Citi bank a couple ofyears ago when they wanted to exit their commercial stuff................
ta
rolf
4 Corners -Bankwest Programme 9/4/12
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I got a similar feeling with Citi bank a couple ofyears ago when they wanted to exit their commercial stuff................
ta
rolf
Can someone please explain to me how it is in the banks interest to foreclose on a business or a house just because the LVR has dropped below their lending criteria when the borrower hasn't missed a repayment and is still making repayments according to the original loan agreement.
Generally the bank will take a big haircut if they do this whereas had they left the situation alone the debt and the original loan stand a chance of being paid back in full.
Generally the bank will take a big haircut if they do this whereas had they left the situation alone the debt and the original loan stand a chance of being paid back in full.
My thoughts exactly, well especially for residential property. In regards to business and commmercial I would guess it is because they feel the business will fail sooner or later and instead of waiting for the business to get into further trouble the bank is stepping in. But it doesnt make a lot of sense to me.
Yes, you are correct Terry. She was indeed behind and was working with the bank on rectifying the situation until they made some internal changes and reneged on all past agreements.
The parallel I was drawing was the open practice of CBA wishing to "call in" all potential bad debts after they purchased Bankwest.
The bank has to set aside assetts to cover the chance of loans going bad. If the situation changes, the whole loan book of say, hoteliers in a certain region or state might move into a higher risk, and therefore more assets set aside. If they move part of that book, even at a loss on some individual levels, the freed up set aside assetts can be redeployed in a more profitable area. If they dont, the securites continue to detereorate and the amount of assets set aside grows.
Remember they wouldnt have sent all of their clients to the wall, lots would have been in a position to refinance with another lender, or cope with the stricter terms. Commercial finance is more expensive. banks arent content for long periods of interest only, (as it doesnt 'move' the assetts they need to set aside) they usually want a term loan. Term loans for commercial finance are usually 10 or 15 years..
I agree i am not having a go at Bankwest or CBA just the principal, even the examples on that show were not very relevant. All banks do it when they feel like it, W*stp** did some horrible horrible things to people in the 90's in Melbourne in the commercial field, wiped them out for no reason.
Please bear with me on this! What assets does the bank have to set aside? If you mean deposits then I thought they worked on a fractional reserve system of about 12%. So that means for ever $120,000 deposited they can lend $1,000,000. If they lose $500,000 by foreclosing a loan how can they expect to earn that back in under 5 years?
If they had a deposit of 120k they can only lend out 100k leaving 20k in reserve or whaterver the fraction is the point is they can not lend out more than has been deposited.
I think you will find it is the other way around.
You can't lend money you don't have.
Banks can. They do it everyday of the week. It's called fractional reserve banking; by the time they have redeposited the deposits half a dozen times they can then lend out much more than the real amount of cash originally deposited.
But the issue is why would a bank want to take a big hit that would take it years to recover from when the customer is still paying the interest on time.
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I wouldnt agree with that tobe, Ive found them very content. I would have thought most comercial loans would be in the form of an overdraft or LOC, with money constantly being paid in and paid out, or only being paid in couple of times year. Being in the black sometimes and being about 40-70% drawn most of the time. They are more concerned with cash flow and assets acquired/created to produce future cashflow and ability to service loan. The loans are increased every year or two as the assets and cashflow increase. The bank are in the buisiness of lending money, they want to increase the money thay lend. Ive had interest only Commercial LOCs for 10 years that expire in 2049.
The CBA is NOT as pure as the driven snow.
A friend of Mrs Fish's and one of her friends have had the deeds to their houses returned to them, clear and unencumbered, after they lost them in the Storm Financial fiasco.
Why? Certainly not because the bank has a big heart so it must have been because they acted illegally. "Non disclosure" clauses have kept this out of the public arena though.
If things go bad in residential, the fine print in your mortgage will be acted on also.
I may not be rich, but I'm out of debt and have some "real" money in non-US vaults.
Got gold yet?
A friend of Mrs Fish's and one of her friends have had the deeds to their houses returned to them, clear and unencumbered, after they lost them in the Storm Financial fiasco.
Why? Certainly not because the bank has a big heart so it must have been because they acted illegally. "Non disclosure" clauses have kept this out of the public arena though.
If things go bad in residential, the fine print in your mortgage will be acted on also.
I may not be rich, but I'm out of debt and have some "real" money in non-US vaults.
Got gold yet?
Lol another student of youtube listen to what your saying the fact that the total lending is higher that the first initial deposit is irrelevant total lending will never be greater than total deposits but will be greater than total reserve dont confuse the two
like those youtube videos that are trying to convince everyone we should be on the gold standard. fact is when i borrow money i have 100% use of that money when banks borrow they only have use of 90% of that money half the reason why the spread between what they borrow at and what they lend at is so high they have to make up for the fact the 10% sitting in reserve is costing them but doing nothing.
Because the bank, and the risk people that decide on the 'reserve' for a particular segment think the losses will be greater if they leave it any longer. Pulling the bandaid off quickly. remmber, they made losses on some of these deals, many would have been refinanced to other institutions, or the lendee's would have agreed to new more onerous terms.
Discussions around the multiplier effect of FR invariably confuse the impact at a system level vs that of the individual bank. At the individual bank level your funding task comprises making sure you have sufficient liabilities to fund your assets.
People also tend to confuse capital requirements (how many $ you have to hold for a given asset size that you don't owe anybody in order to meet unexpected losses) vs. liquidity reserves which is what you need to set aside from your funding base to meet your obligations to depositors as and when they fall due.
They aint the same thing.
And there are several reasons why CBA would prefer to take a hit early.
First and foremost, if the deal is underwater and the borrower is in trouble, unless you're confident the borrower will right itself, waiting simply adds to your losses.
Also, if you're in negative LVR territory and there is a reasonable chance the borrower won't get back in good order, you have an impaired loan which is now a deduction from your Tier 1 capital. You don't want it sitting there any longer than is reasonable.
That said, no bank wants impaired assets on their balance sheet so you certainly don't go out and create them. My guess around the 4C examples would simply be that on the yearly review it became apparent that the borrowers were in breach of their LVR covenants or other bits, looking at current circumstances. there was little chance of things getting better, so CBA figured better to accept today's known loss than risk a far bigger one down the track.
Alternatively, maybe CBA is just mean.
I'm pulling double shifts sweeping carparks and changing toilet rolls.
This high falooting money stuff is waaay over my noggin.
What am I, chopped liver?
Liver can be used for some nice small goods if you are into it, so dont be like that : ).
Also dried liver makes a greatdog treat
ta
rolf
