Ask for loans not money!

[JulieW]

Another one from the Age - 25 Nov 2009
Australian banks fail new capital test

http://www.theage.com.au/business/australian-banks-fail-new-capital-test-20091124-jhfn.html

QUOTE
RATINGS agency Standard & Poor's has warned that nearly all the world's big banks - including Australia's major lenders - have insufficient funds to cover their lending exposures and risk a ratings downgrade unless they move to bolster their balance sheets over the next 18 months.

AND

The findings appear to be out of step with claims by Australian banks that they are among the strongest in the world under the traditional measure of bank capital known as the tier 1 ratio.
UNQUOTE​

What I find interesting is that the banks don't hold 10 percent of deposits but 8.9% and held even less a year ago.

Leaving aside the fiat money debate (please), I'd be interested in how people perceive this development, if it affects their investment plans, and what potentials it may have for banks and lending in the near to medium future.

 

[Bill.L]

Julie,

Is that the same ratings agency that rated subprime loans as triple A.

Whether the banks hold 8.9% or 10% is irrelevant, they are backed by a government guarantee that means they have effectively 100% cash backing, the govt will just print more to bail them out if need be.

bye

 

[Aaron Sice]

i've been saying this since day dot - i'd like to know just how "insolvent" banks have been since 2001. 8.9% - im sure - is a massive improvement over the 4-odd% they were in 2007.

thanks for posting Julie.

 

[JulieW]

Yes I know Bill. Hope you're being sarcastic!

Head of ANZ on ten mlllion a year and an emergency parachute from the taxpayers if things go too wrong. Nice work if you can get it.

Julie,

Is that the same ratings agency that rated subprime loans as triple A.

Whether the banks hold 8.9% or 10% is irrelevant, they are backed by a government guarantee that means they have effectively 100% cash backing, the govt will just print more to bail them out if need be.

bye

 

[boz]

In any case these days banks assets value is very dodgy and tier 1 is dodgy as a consequence.
I found this chart few weeks ago (if someone really believe banks data...)

In any case a rising home price/share market environment would generally make the tier 1 looks better, a falling one worse. Potentially the australian home prices could fall in years ahead much more then other country and make australian banks much more in need of capitals.

 

[Aaron Sice]

no offence boz - but you said it - *coughbullsh*tcough*...!!!!

that data is based on what now?

 

[Piston Broke]

Yes I know Bill. Hope you're being sarcastic!

Head of ANZ on ten mlllion a year and an emergency parachute from the taxpayers if things go too wrong. Nice work if you can get it.

Have'nt they told ya? This is the lucky country!

 

[ColonialBoy]

Julie,

Is that the same ratings agency that rated subprime loans as triple A.

Whether the banks hold 8.9% or 10% is irrelevant, they are backed by a government guarantee that means they have effectively 100% cash backing, the govt will just print more to bail them out if need be.

bye

There is a temporary guarantee brought about by the GFC, there has been no permanent guarantee.

 

[JulieW]

Well some good news now courtesy of The Age once more.

Someone once said that economic predictions make astrology look respectable (an economist from memory!)

One thing tho is that 'the consensus' has been show to be correct most of the time (I saw "80%" quoted in lie or optimism).

With that in mind:

http://www.theage.com.au/business/economic-recovery-more-a-simmer-than-a-boil-20100101-llw4.html

" Perhaps the last word should go to the forecaster we should have followed at this time last year: BT's chief economist and resident wit, Chris Caton.

Dr Caton punted correctly a year ago that the recession would be short and shallow, and followed by a strong rebound in market confidence. He picked the stockmarket levels here and overseas with impressive foresight, tipped that the dollar would rise and the budget deficit blow out, and foresaw two of the Reserve Bank's three interest rate rises.

For 2010, Dr Caton is in the consensus, but at the optimistic end, predicting more or less normal growth for Australia and the world.

A close watcher of the US economy, his stand-out tip is a 3 per cent US growth rate this year. That would help solve many people's problems if it came true.

Here's hoping that he's correct!

 

[Aaron Sice]

i still say lending criteria has slowed to constrict supply, artificially increase demand, therefore prices, to increase the equity available to banks to bring them back closer to the 1:10 equity/loan ratio.

 

[Piston Broke]

No reference is made on exactly what Caton said and where he said it.
Given that he was chief economist of BT whose performance was less than mediocre, I would'nt be so sure about his predictive prowess.

edit
I managed to find it:
http://money.ninemsn.com.au/article.aspx?id=303960 Oct 2007
"It's difficult to figure out why the dollar is strong," says Caton. "It could be that we have higher interest rates than elsewhere but that's been the case for some time. It could be because commodity prices are strong but they've been strong for some time too."
As a result Caton says that he has a suspicion that it will come down to US85c. "That's a far more likely scenario.”

And from someone else on "consensus":

November 15, 2007 08:57 AM
Still, with all this talk about the USD falling into oblivion, I think it will soon be time to slowly start accumulating USD.
Never were so many people so right in calling the market. Considering the masses always get it wrong, why the exception this time?

 

[mortgageman]

i still say lending criteria has slowed to constrict supply, artificially increase demand, therefore prices, to increase the equity available to banks to bring them back closer to the 1:10 equity/loan ratio.

That's a very interesting theory Blue Card. Whether intentionally or not, the effect of the lack of credit available for development funding looks likely to have the desired effect.

 

[Aaron Sice]

That's a very interesting theory Blue Card. Whether intentionally or not, the effect of the lack of credit available for development funding looks likely to have the desired effect.

of course there's no proof - but the motive is there.

 

[Graemsay]

It was interesting seeing this thread today. Societie Generale has just announced that it might be sitting on losses of €1.4 billion from bad loans.

http://news.bbc.co.uk/1/hi/business/8458294.stm

It's reckoned that banks have only disclosed around half of their bad debts so far, and some commentators suspect that the European institutions still have a lot on their books. (That said, a lot of the UK media is vehemently anti-European, so there's a bit of bias there. )

 

[ColonialBoy]

Whether the banks hold 8.9% or 10% is irrelevant, they are backed by a government guarantee

The temporary guarantee (because of the GFC) expires on 12 October 2011.

 

[Shadow]

The temporary guarantee (because of the GFC) expires on 12 October 2011.

It doesn't automatically expire after three years. After the three year period, the guarantee is set to be reviewed. At that time the government may decide to keep it, remove it, or modify it.