Banks Exposed

[yieldmatters]

BRIAN JOHNSON: Well, Ali if you were to go back to the early 1990s and because I'm slightly older than Noah I can remember this. The banks used to say you would never lose money on commercial property because of the quality of the security. In the US were saying you would never lose money on housing lending in the US. You look at it and it's important to challenge some of these truisms. And the fact is, if you look at it, households have a lot more debt than historically, interest rates are a lot higher and there are signs of distress in everywhere except for the mortgage stress testing of the banks themselves.

ALI MOORE: That would mean you think bad debt provisions, wishful thinking as it stands now?

BRIAN JOHNSON: Yeah, certainly.

Link here. The whole interview (it's on video too) is interesting. Any mortgage brokers out there? Is it true what they are saying? Are the banks pulling back on lending especially via brokers?

http://www.abc.net.au/lateline/business/items/200803/s2189073.htm

 

[DavidMc]

I just applied for a revalue/refinance on Friday.

My broker said loans up to 80% credit is still 'fine' with my bank (big 4).

He said where a mortgage insurer is involved (i.e. 80, 85%+ loans) they have tightened things a bit.

Two of my loans are 95% and my DSR is very strong.

It will be interesting to see what the property valuations come in at.

 

[alexlee]

Surely people went through this in the 90s. There was a lot of pain, but the economy as a whole got through it eventually. Sure there might be a lot of bankruptcies, etc for people who lose their jobs, but I'm not going into my bunker. Keep more cash on hand, keep LOCs open, etc just in case, but I'm not lightening my exposure.
Alex

 

[yieldmatters]

I think the banks are exposed. The banking association (and the RBA, and APRA) have all ignorantly said "balance sheets are healthy". Balance sheets are always healthy in the thick of a bubble. See people with I.T. stock in 1999, see Japanese people in the late 80's, see the USA bank's balance sheets before they fell apart. They all had healthy balance sheets.

It all depends how you value the assets - if you take comparison sales at the same time in the same place then of coruse the balance sheet will be healthy. If you take long term trend, or rental yield, or wages multiple (or any other measure) then the balance sheets will look sick. The truth will be somewhere inbetween.

 

[WinstonWolfe]

That's an insightful interview. Thanks for posting it. Lateline should be setting up panel discussions with bank reps to get the other side of the story.

To counter Brian Johnson's dim view, a higher % of borrowers are fixing, which would lower bank exposure to cost of foreign credit over the next 18 mths.

And you'd expect the fixed rate permium to be a lot higher if Johnson is right about the pressures on cost of foreign credit.

nevertheless, Bear Stearns is driving home that fear will keep global liquidity tight for quite some time.....maybe as much as 18mths....and at least until house prices in the US stabilize and US banks show that they are liquid in the face of uncertain asset prices.

 

[nonrecourse]

That's an insightful interview. Thanks for posting it. Lateline should be setting up panel discussions with bank reps to get the other side of the story.

To counter Brian Johnson's dim view, a higher % of borrowers are fixing, which would lower bank exposure to cost of foreign credit over the next 18 mths.

And you'd expect the fixed rate permium to be a lot higher if Johnson is right about the pressures on cost of foreign credit.

nevertheless, Bear Stearns is driving home that fear will keep global liquidity tight for quite some time.....maybe as much as 18mths....and at least until house prices in the US stabilize and US banks show that they are liquid in the face of uncertain asset prices.

I think your being very optomistic winston if you expect this liquidity crisis to sort itself out in 18 months. There will be at least another 2 years of serious sub prime issues. The collateralized debt obligations and the insurance fall out behind that is still to come. Its like a huge iceberg. We are only seeing about 10% of the unfolding scenario.

The next 3 years 2008, 2009 and 2010 will expose us to further risk.

 

[DavidMc]

I just applied for a revalue/refinance on Friday.

My broker said loans up to 80% credit is still 'fine' with my bank (big 4).

He said where a mortgage insurer is involved (i.e. 80, 85%+ loans) they have tightened things a bit.

Two of my loans are 95% and my DSR is very strong.

It will be interesting to see what the property valuations come in at.

Loans have been 'approved', just waiting on valuations.

I'm assuming this means my DSR is all good, now just waiting of the 'V' part of LVR.