Aussie Banks Financed by the US Fed

Hi

Not sure if this was posted elsewhere someone can pull me up if so.

I had an email in my inbox this morning which basically outlined how the Aussie Banks (mainly Westpac and NAB) accessed funding from the US Fed in 2008. The article was written by Kris Sayce for Money Morning Australia. Although it seems the mainstream media hasnt picked on it yet. (Sorry for the quality/readability, I had to cut and paste)

Now the links dont work in this but it does make for very interesting reading.
As well, all you have to do is google and the articles pop up from everywhere to back it up

Quite interesting to think that perhaps (if that is the right word) the banks arent as stable as people promoted and more interesting to find out that Westpac might actually own BoQ and it hasnt been publicly disclosed.

I'll let you make your own judgements

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NAB and Westpac's Secret
Bailout Revealed
Friday 3rd December, 2010 - Melbourne, Australia
By Kris Sayce


* NAB and Westpac's Secret Bailout Revealed

* 60 Second Market Wrap

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It's time for an apology. No, not from your editor. We're always right, so
there's no need to apologise [wink].
Instead the apology needs to come from the Australian mainstream financial
press. The same financial press that told you Australia's banks were strong.
That Australia had the best prudential regulation in the world. That
Australian banks were different to all those dirty foreign banks.
But an apology also needs to come from the banks who themselves claimed
things were different here. And that Australia's banks didn't have the same
solvency problems as US and European banks.
Why do they need to apologise? Well, two years after the global financial
markets collapsed, a secret bailout of two of Australia's biggest banks has
been revealed.
This is pretty big news. Or rather, you'd think it would be pretty big news.
But as you can imagine there's almost uniform silence from the banks and the
mainstream press.
Shortly after we sent you yesterday's Money Morning we decided to do a bit
of fishing around on the US Federal Reserve website. You see, earlier that
morning the Fed had released some pretty hot material, and we wanted to see
what it contained.
What we found shocked us. Although it really shouldn't have, because we knew
the claims about the Australian banking system being strong and robust were
complete lies anyway.
In fact, so shocking is this revelation that we considered sending you a
Money Morning special edition yesterday afternoon. But we didn't. We're fed
up of giving the mainstream scoops which they then claim as their own.
Instead we thought we'd wait to see if the Australian mainstream press
picked up the story first.
Surprisingly they have. But not with any enthusiasm. And hardly with what
you'd call any effort. Probably because they're a bit sheepish about the
fact the banks and regulators have made fools of them. I'll provide you with
the link to the one story on it in a moment.
So excited were we to see how the mainstream had handled this story we did something we normally never do - enthusiastically open the Australian
Financial Review (AFR).
The first thing we did was check the Companies Index on the back page. This was promising, the two banks in question were mentioned. We eagerly flicked through to the relevant pages... and drew a blank.
Not a single mention of it. So we started from the front and worked our way
quickly through the paper... page seven... here it is... "Rescues: RBA
borrowed billions from Fed" was the headline... but no, this isn't what
we're looking for.
On we went, past the big centre-fold spread telling readers that the AFR
contains, "Up-to-the-minute market information, news, commentary and expert analysis... All from just $44 per month".
We continued... through to the end. Not peep. Not a single mention.
And the AFR is supposed to be Australia's premium business newspaper. We
wouldn't have thought so.
About all it's good for is lining bird cages in our opinion.
But then, we guess if the AFR exposed the banks' duplicity it wouldn't be
able to get an interview with the likes of Commonwealth Bank of Australia
[ASX: CBA] CEO Sir. Ralph Norris.
Said person is the feature item in the Boss glossy mag insert in today's
AFR.
We can't be bothered reading it. It's surely pap.
But anyway, what the heck are we going on about? This...
I'm talking about the near collapse of the Australian banking system in
2008. I'm talking about the likelihood of two Australian banks collapsing in
2008 if they hadn't secured a secret loan from the US Federal Reserve.
The fact that National Australia Bank [ASX: NAB] had to borrow USD$4.5
billion from the US Federal Reserve during 2008 and 2009.
And Westpac Banking Corp [ASX: WBC] needed USD$1.09 billion in January of 2008 and 2009.
What's that, you don't know anything about it?
And you don't remember reading about it?
There's a simple reason for that. It's been top secret information until
yesterday morning.
That's right, if it wasn't for the passing of controversial legislation in
the United States you'd never have found out about NAB and Westpac's Federal Reserve bail outs.
And based on the lack of interest from the mainstream press - including
Australia's so-called premium business newspaper, if it wasn't for Money
Morning you'd still be none the wiser.
The one and only article we've found that mentions it is this one from The
Age
<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs5A/AQ/AtQko
g/Ih7t , headlined "NAB, Westpac tapped Fed".
It appears to be an adaptation of a New York Times article based on the
reference at the end, with localised bits added by Eric Johnston. But this
one pathetic effort shows just how clueless the Australian mainstream press
is.

Johnston makes this comment:
"The Westpac borrowings are unusual, as it barely has a North American
presence, operating only a US representative office."
Seriously, do I really need to explain it to a veteran journalist?
Talk about not being able to see the wood for the trees. Talk about not
getting it.
Here's a clue for Mr. Johnston, it wasn't Westpac's US office that needed
the dosh, it was Westpac in Australia that needed it. It shows you that
without the direct financial support of the US Federal Reserve Westpac and
NAB would have been toast.
Westpac and NAB needed the loans because they were on the verge of going belly up. It's that simple. If they hadn't gotten secret loans from the US
Fed they would undoubtedly have needed secret loans from the RBA.
Fortunately for the RBA, the Fed opened the door and this allowed Aussie
central bankers and bankers to claim that the Aussie banks hadn't received a bailout.
But not only that, what's most extraordinary is that Westpac was one of the
first institutions to borrow money from the Fed when the lending facility
became available!
But more about that in a moment. Let me give you some of the background
first...
You may have read about something called the Dodd-Frank Act. The full name is the Wall Street Reform and Consumer Protection Act. It's called
Dodd-Frank after the bill's sponsors, US Senator Chris Dodd, and
Representative Barney Frank.
The legislation mandates a number of things, but part of it is the
requirement for the US Federal Reserve to reveal which institutions it
loaned money to under the various bail out programmes.
One of those programmes was titled the Term Auction Facility
<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs5Q/AQ/AtQko
g/aPjq (TAF). According to the Fed's website:
"Under the program, the Federal Reserve auctioned 28-day loans, and,
beginning in August 2008, 84-day loans, to depository institutions in
generally sound financial condition...
"...Of those institutions, primary credit, and thus also the TAF, is
available only to institutions that are financially sound."
OK, so only "financially sound" institutions were eligible for TAF loans.
That would be financially sound institutions such as LloydsTSB plc which got
a USD$10.5 billion loan from the Fed and which later had to be partially
nationalised by the UK government.
It would also include ABN Amro Bank which grabbed USD$1.5 billion of loans
from the Fed, and which would later cause such a financial strain on Royal
Bank of Scotland (RBS) after RBS bought it that the UK government had to
partially nationalise it too.
Not to mention the USD$53.5 billion of loans RBS needed directly.
Then there was Allied Irish Bank, who could forget it? The Irish certainly
won't.
Between February 2009 and February 2010 Allied Irish Bank needed USD$34.7 billion of loans from the Fed. Allied Irish Bank also had all its
obligations guaranteed by the Irish taxpayer and is the primary reason why
Ireland now requires an International Monetary Fund and European Union
bailout to the tune of $113 billion.
And what about Bayerische Landesbank which needed a USD$13.4 billion bailout from the state of Bavaria? Well, apparently it was financially sound enough to borrow USD$108.19 billion between December 2007 and October 2009.
So, we can take with a grain of salt the Fed's claim that only "financially
sound" institutions had access to the TAF programme. Financially unsound and insolvent banks were given loans too.
And in the middle of all that wheeling and dealing, when a total of nearly
USD$4 trillion was loaned to and repaid by "financially sound" institutions,
Australia's very own National Australia Bank and Westpac were in on the
action too.
Although it was only a relatively small amount compared to some of the other transactions, it was still USD$4.5 billion and USD$1.09 billion
respectively. But it was still a lot more than the USD$1.5 billion needed by
financially unsound ABN Amro.
Also don't forget that the NAB went to the Australian stock market in late
2008 to raise $3 billion. That was a sum it needed to bolster its capital.
If $3 billion was a significant and important number for the market to know
about then surely USD$4.5 billion (about AUD$7 billion at the time) was even
more crucial for the market to be aware of.
But there wasn't a peep from them.
Because as I say, you didn't know anything about the NAB's and Westpac's Fed loans. It was all top secret.
And it's obvious that $3 billion capital raising still wasn't enough because
NAB had to go begging to the Fed twice after that for $1.5 billion a time.
But as I say, you didn't hear a word about this at the time. It was all top
secret. But that didn't stop the bankers and regulators and politicians from
posturing about the stability and strength of Australian banks.
In January 2008 Westpac denied there was a problem with its US exposure
<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs5g/AQ/AtQko
g/inMJ . That's despite the fact just one month before, on December 20th
2007 Westpac had gotten a USD$90 million loan from the Federal Reserve under the TAF programme.
Not only did it get the loan, but it was one of the first in the queue! As
you can see from the screenshot below:


<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs5w/AQ/AtQko
g/MuP1
Source: US Federal Reserve
You can check out the full details here by downloading the
<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs5Q/Ag/AtQko
g/LWaQ spreadsheet.
You'll note that Westpac applied for the loan on the same day as Citibank
(bailed out by US government), Lloyds TSB Bank (bailed out by UK
government), Bayerische Landesbank (bailed out by Bavarian government), and
Societe Generale (which was bailed out by the US government courtesy of the
AIG bailout against which SocGen had a massive CDS exposure).
In other words, we're talking about a rag-tag bag of insolvent banks. And
our own insolvent bank - Westpac - was amongst the thick of it, begging for
an emergency loan from the US Federal Reserve as soon as the doors were
opened.
It's something you'd think would be of interest to shareholders don't you?
But there wasn't a word from them.
And it must now make the Reserve Bank of Australia (RBA) feel foolish,
considering in September 2008, just before NAB sought the Fed's help, the
RBA wrote
<http://clicks.portphillippublishing.net//t/AQ/AANdHw/AANm+w/AALs6A/AQ/AtQko
g/BLM0 :
"The Australian financial system has coped better with the recent turmoil
than many other financial systems. The banking system is soundly
capitalised, it has only limited exposure to sub-prime related assets, and
it continues to record strong profitability and has low levels or problem
loans. The large Australian banks all have high credit ratings and they have
been able to continue to tap both domestic and offshore capital markets on a
regular basis."
Tapping "offshore capital markets" obviously included the US Fed.
So we wonder, how much did the Reserve Bank of Australia know about this?
While it was talking up the strength of the Australian banking system did it
know that two of the four Australian banking pillars were desperately
seeking loans from the US Fed?
Or, like you, was the RBA in the dark? And what about the Australian
Prudential Regulation Authority (APRA)? We've been told they've done all
manner of stress tests and the banks passed with flying colours.
How can that be possible if Westpac and NAB need emergency loans from the US
Fed? Was this included in the stress tests?
Anyway, we'd like to know. So we've fired off emails to the RBA, APRA and
the Australian Securities Exchange (ASX) asking them these simple questions.


* When did the RBA/APRA/ASX become aware of Westpac and NAB's loans
under the TAF programme?

* If RBA/APRA/ASX were not aware of the loans under the TAF programme
please explain why.

* If RBA/APRA/ASX were aware of the loans please explain why this
wasn't considered to be important enough to inform the market?

We'll let you know if or when we get a reply.
But it wasn't just Westpac that kept quiet about it.
NAB chairman Michael Chaney must surely have realised what he was saying
when he made the following comment at the December 2008 annual general
meeting:
"Our traditional banking and wealth management operations are all
profitable, strongly capitalised and conservatively funded. In addition, our
banking businesses have sound asset quality and are well provisioned."
So sound was the asset quality that just six weeks earlier NAB's New York
branch had to arrange a USD$1.5 billion loan at an interest rate of 0.6%
with the US Federal Reserve.
All under a shroud of secrecy.
All under the belief that no-one would ever find out about it because no-one
could find out about it. The Fed at that time was under no obligation to
reveal which banks were taking short term loans from the Fed...
Until the Dodd-Frank Act was passed.
Look, we'll say we told you so. We've claimed all along that Australia's
banking system is no different to any other. It's inherently insolvent - as
are all modern day banks.
Along the way we've been called a "lunatic" and a "nutter" for writing what
we believed to be true. And would you believe it, once the secrecy of
corrupt governments and bankers is revealed this "lunatic" and "nutter" has
been proven correct.
But I understand it may not seem like that at the time. Yesterday we
received this email from a Money Morning reader:
"Hello Kris
"I don't normally send comments to publications nor do I sit there and read
others comments, however, yesterday I came across a sticker on a car bumper.
When I read it, I immediately thought of you and I think you will like it
too.
"'Do not steal. The government does not like competition.'
"I enjoy reading your daily newsletter. Even though some of your theories
sound crazy at the beginning, it's funny how they do in the end sound
believable. We do live in a world where some people do not put other
peoples' interest first.
"Lisa"
It's true. Government is above the law. It can legally steal private
property - it's called taxation. Nice trick huh!
But Lisa hits the nail on the head. What you read here may sound crazy, but
it only sounds crazy because it's outside the norm. It's different to what
you read anywhere else.
And that's simply because we don't have to worry about what our advertisers think - because we only advertise our own services. And we don't have to
worry about turning readers off with our seemingly radical ideas, because
most of our readers come here because of those radical ideas.
My guess is you're fed up with being told the same rubbish day-in and
day-out by the mainstream press. A mainstream press that reports from press releases, and trusts whatever it is the guys in government or on Wall Street say.
In contrast we've learned to doubt everything they say.
We take the view that anything a mainstream economist or analyst says is
wrong. It's up to them to convince us they're right. Very few of them
succeed because ultimately... I hope this doesn't sound arrogant, they are
wrong.
The state of Australia's banks is a perfect example. For the past two years
you've had to put up with a constant drone of commentary from the mainstream telling you that Australia is different.
As I say, this bombshell from the Federal Reserve proves otherwise. And it
proves we've been right to call the Aussie banks for what they are.
Maybe our claim about NAB's system shutdown last week being caused by a
solvency problem rather than a computer glitch still seems crazy to you. But
we wonder, after reading today's Money Morning, perhaps it now sounds just
slightly less crazy than you first thought...
And furthermore, it must surely make you wonder what else it is the
government and central bankers are keeping secret. Most of which will
probably never be revealed.
All you and I can do is use our scepticism and questioning brain to figure
out what's really happening. Because more often than not, the story the
mainstream peddles is as far from the truth as you can get.
Yesterday's revelation from the US Federal Reserve about NAB's and Westpac's secret loans is a perfect example. We look forward to getting a reply from the RBA, ASX and APRA about how much they knew and when...
But we won't hold our breath.
Cheers.

Kris Sayce
For Money Morning Australia
 
Sounds a bit sensationalist and blatant big media bashing, nothing new from Kris Sayce and Money Morning. I stopped reading The Daily Reckoning and it's ilk a while back when it was evident that the world had not come to an end as predicted.

Aussie banks tapped the foreign money market back in 2008. The world continued to turn and the sky did not fall, doesn't sound as catchy a headline.
 
If the Fed is offering cheap financing, why wouldn't you take it? It's not a matter of whether a bank 'needs' the funding. Those were scary times. More liquidity is never a bad thing.

Australian banks are funded by foreign sources. This is nothing new.
 
some of their higher level ideas seem conceivable tho - fragmentation of the unified euro currency, long term death of the USD
 
Gee, i dunno.... Crisis of liquidity during global financial crisis; Oz banks need to roll over loans & go to the market. Where can they get $ at a reasonable rate?... Ummm..... US Fed at 0.6%. I'll take it, thanks! Bit of a no brainer, i would think.
For those who may not know, Sayce is a well-known anti-property campaigner. I'm guessing that the funds Oz banks have tied up in mortgages would also make them a target for guys like Sayce, as the House of Cards that is the Oz property market is supporting / being supported by the House of Cards that is the Oz financial market....Apparently.
 
....the House of Cards that is the Oz property market is supporting / being supported by the House of Cards that is the Oz financial market....Apparently.

Given what has happened to most of the world's property markets and their symbiotic financiers in the last five years, his concern is reasonably substantiated. Just because we dodged the GFC bullet doesn't mean the bullet didn't come awfully close.
 
If the Fed is offering cheap financing, why wouldn't you take it? It's not a matter of whether a bank 'needs' the funding. Those were scary times. More liquidity is never a bad thing.

Australian banks are funded by foreign sources. This is nothing new.

I agree. I don't think there is anything much to read into the story. The Australia banks source money from overseas. At the height of the GFC the financial markets froze, and banks stopped (or severely reduced) lending to each other. If the Fed is then offering cheap financing, the banks will just then source the money from there.
No news (even for a D&G).
 
The whole point is that such information should have been disclosd to the public. The other banks did not go the the fed reserve, apparently even though the money was cheap, so that blows that theory out of the water. It is clear that the two banks involved needed the money, so we can say what if they had not have gotten the money, maybe belly up somehow, who knows but it stinks. It is a clear cover up and one can perhaps understand because relaesing such informaiton at the time may have been devestating to our financial system, but hey, they got away with it.

So what good are the regulators etc. See its not th eproblem that they got the money its why they got the money and why no disclosure.
 
The whole point is that such information should have been disclosd to the public. The other banks did not go the the fed reserve, apparently even though the money was cheap, so that blows that theory out of the water. It is clear that the two banks involved needed the money, so we can say what if they had not have gotten the money, maybe belly up somehow, who knows but it stinks. It is a clear cover up and one can perhaps understand because relaesing such informaiton at the time may have been devestating to our financial system, but hey, they got away with it.

So what good are the regulators etc. See its not th eproblem that they got the money its why they got the money and why no disclosure.


Why? i don't see your point. Banks are constantly having to borrow money. Thats what they do. Borrow so they can lend.

Thousands of companies borrowed money from the Fed at that time (even McDonalds). Cash was hard to come by at the height of the GFC

Why should they have to disclose something that is normal business function?
Or is it the fact that it was from the Fed?? Tin Foil Hats away people.
 
Why? i don't see your point. Banks are constantly having to borrow money. Thats what they do. Borrow so they can lend.

Thousands of companies borrowed money from the Fed at that time (even McDonalds). Cash was hard to come by at the height of the GFC

Why should they have to disclose something that is normal business function?
Or is it the fact that it was from the Fed?? Tin Foil Hats away people.

I think the point is that they are required by the ASX to publicly announce anything that would reasonably be assumed to affect their share price.

Would have borrowing from the Fed during the crisis fit in this description?

I'd say Yes, it may have caused a bit of a stir. As we always read, markets are about sentiment and this may have adversely affected so.
 
What a silly article.

In 2008, there was a liquidity crisis which could've crunched even Australian banks and inside news were that some big names too here could be dragged down if America completely imploded, as liquidity will freezed entirely, overnight lending died and banks ran and virtually bankrupted overnight.

I'm sure no one thinks Australia is immune to an outright collapse of America. The banks needed money and liquidity was and still is scarce, and the banks been telling us that for ages haven't they? That's why the cost of funding is now very high.
 
The point bieng is that it should have been disclosed, simple as that, maybe it would have been very damaging etc, but then in reality they have been given a free pass whereas other companies who went belly up were not given a free pass. See I can see litigation coming out of such action. That is why they do not wish to say anything.
 
The point bieng is that it should have been disclosed, simple as that, maybe it would have been very damaging etc, but then in reality they have been given a free pass whereas other companies who went belly up were not given a free pass. See I can see litigation coming out of such action. That is why they do not wish to say anything.

kotim, clearly your understanding of the banking system is limited. When the US Fed "prints" $600B, where do you think that money goes. Eventually to the banks to increase lending and boost the economy. Same as what happened in China with the increase in Money Supply by the central bank overheating bank lending.
There is nothing suspisious to it kotim. It's just your lack of understanding of the financial system.

Money Supply
http://en.wikipedia.org/wiki/Money_supply
 
The point bieng is that it should have been disclosed, simple as that, maybe it would have been very damaging etc, but then in reality they have been given a free pass whereas other companies who went belly up were not given a free pass. See I can see litigation coming out of such action. That is why they do not wish to say anything.

why were Lehman Bros allowed to fail, but Goldman Sachs bailed out?

Have a look at Obama's staff inventory - nearly all are ex-Goldman Sachs minions.

Maybe the same applies here. Just dig a little deeper.
 
Because the ex-US Secretary for Finance was the ex-CEO of Goldman Sachs, and the next US Secretary is probably going to be an ex-CEO of Goldman Sachs too... Who exactly has Lehman Brothers got in power?
 
Blue storm, I know a lot more about banking than you think.

Lets see how much you know, tell me true or false.

When you apply for a home loan, The bank creates a promissory note via power of attorney from you.

If you understadn the implication of this then you know how banks don't lend money, they extend credit, your credit.
 
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