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Does It Get Any Better For The Big Four?  

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on the health of our big four banks did everything to find the downside - from over dependence on offshore funding (not quite), worries about the impact of a slowdown in China (not new) to fears about the impact of a downturn in housing prices (again not new).

 

But the reports and writers avoided pointing out high in their stories, that Fitch had not only reaffirmed the banksÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ existing ratings, but actually ruled out some of the negatives found by the media.

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Growing macroeconomic risks appear manageable for AustraliaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s major banks in the absence of an economic shock, which could result from a hard-landing in China, Fitch Rating says in an Australia bank report published on Friday.

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“However, a hard-landing is not FitchÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s base-case scenario and the agency affirmed the ratings of all four major Australian banks at AA- with a Stable Outlook on 11 May 2016,ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ Fitch wrote in the first paragraph of its release.

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i hold chunk of NAB for one or two month trading. looks gonna go up today as asx200 will clear 5400 today, well , most likely!!

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by Satyajit Das If Australia is an economic miracle, with more than 25 years uninterrupted growth, then its banks are its most visible sign of strength.

 

After a near-death experience in the 1990s, they've reformed and bounced back dramatically: Returns on equity now average around 15 per cent, compared to single digits in the US Share prices and dividends have risen strongly over the past decade. At around twice book value, market valuations are well above global levels.

 

In fact, though, this ruddy good health masks some deeply worrying trends. The balance sheets of the biggest banks - Commonwealth Bank of Australia, National Australia Bank, ANZ and Westpac - are far more vulnerable than they may seem on the surface -- and that means Australia is, too.

 

To most observers, this might sound alarmist. Scared straight after a mountain of bad loans nearly brought them down at the beginning of the 1990s, the banks reformed and minimised their international exposure, which meant they were insulated from the worst effects of the Asian financial crisis and the 2009 crash.

 

Today they face little competition in their home market and have benefited tremendously from Australia's strong growth, underpinned by China's seemingly insatiable demand for the country's gas, coal, iron ore and other raw materials. During the 2012 European debt crisis, Australia's banks were worth more than all of Europe's.

 

 

Losses likely to rise

But Australian financial institutions have made the same fundamental mistake the rest of the country has, assuming that growth based on "houses and holes" -- rising property prices and resources buried underground -- can continue indefinitely.

 

In fact, despite a recent rebound in Chinese demand, commodities prices look set to remain weak for the foreseeable future. Banks' exposure to the slowing natural resources sector has reached nearly $70 billion in loans outstanding -- worryingly large relative to their capital resources.

 

If anything, their exposure to the property sector is even more dangerous. Mortgages make up a much bigger proportion of bank portfolios than before -- more than half, double the level in the 1990s. And they're riskier than they used to be: Many loans are interest-only, while around 80 per cent have variable rates.

 

With a downturn likely -- everything from price-to-income to price-to-rent ratios suggests houses are massively overvalued -- losses are likely to rise, especially if economy activity weakens.

 

Australian banks are also more vulnerable to outside shocks than they may first appear.

 

Their loan-to-deposit ratio is about 110 per cent. Domestic deposits fund only around 60 per cent of bank assets; the rest of their financing has to come from overseas. While that hasn't been a problem recently, Australia's external position is deteriorating.

 

The current account deficit is expected to climb to 4.75 per cent in the year ending June 30. Weak terms of trade, a rising budget deficit, slower growth and a falling currency are likely to drive up the cost of funds. If Australia's economy or the financial sector's performance falters, or international markets are disrupted, banks' access to external funds could be threatened.

 

 

Addicted to cheap credit

Risks to the financial sector should be getting far more attention than they are in Australia's ongoing -- and terrifically anodyne -- parliamentary election campaign. Banks have grown immensely since the 1990s and now make up a much bigger part of the Australian economy. The top four are among the country's largest listed companies, accounting for more than a third of total market capitalisation. Their combined assets account for about 130 per cent of GDP.

 

Any pain they feel could thus spread quickly throughout the real economy. Falling bank stocks could well drive down share prices more broadly. Shrinking dividends -- which have traditionally been quite high, around three-quarters of earnings -- would hammer investors, especially self-funded retirees, and threaten consumption.

 

An economy addicted to a ready supply of cheap credit would struggle to keep growing.

 

Meanwhile, the government's options are limited. Cutting interest rates further to spur economic activity would risk worsening the housing bubble and adding to sky-high levels of household debt, already around 130 per cent of nominal GDP and nearly 200 per cent of household disposable income.

 

 

Time to diversify

If interest rates were to rise, that on the other hand, could trigger defaults, especially on riskier loans such as those to property developers. Fiscal policy is similarly constrained: Increasing debt beyond certain levels would threaten Australia's credit rating and thus banks' access to offshore funding.

 

Pundits have been saying for years that Australia needs to diversify its economy, boosting services exports -- primarily tourism, education and health -- rather than continuing to depend on resources and debt-fueled property growth.

 

Banks need to do the same, reducing their exposure to the housing market and the mining industry. At the same time, they should move swiftly to shore up their balance sheets, aggressively increasing bad-debt reserves, raising capital and gradually trimming dividends. Even their otherwise enviable luck can't last forever.

 

Bloomberg

 

 

Read more: http://www.afr.com/business/banking-and-fi...g#ixzz4A6ZCVb2m

Follow us: @FinancialReview on Twitter | financialreview on Facebook

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Oh ye of little faith :o

 

 

Feel the Force, Luke. The Force is with you, and you got it right the first time :rolleyes:

I still believe that XJO will find new support at 5400. It is however likely that the US holiday and the psychological "round figure hurdle" makes some punters nervous; hence today's oscillating around that level.

 

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no funds manager or institution will admit to buying this sector, yet clearly the prices are being sustained.

 

Credit spreads have eased since Jan and this should help margins. Borrowing are less; the banks can hold lending rates

 

Plus : ....Many expect a RBA cash rate at 1.5 per cent throughout 2017, while the US Federal Reserve's target rate may well climb from 0.25 to 0.5 per cent now to 2.25 to 2.5 per cent by the end of next year. Forecasts therefore imply that by the end of next year interest rates in Australia will be around 0.75 percentage points lower than rates in the US. This will help narrow the spread between the two benchmark 10-year government bonds, which is now about 0.5 percentage points

 

(no individual , retail investor already owning banks (- and those 'of a certain age' would almost definitely have, & tilting to overweight) would be buying more, but the yield , plus prospect of CGT, makes it hard to sell )

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hi nip,

 

no individual , retail investor already owning banks (- and those 'of a certain age' would almost definitely have, & tilting to overweight) would be buying more, but the yield , plus prospect of CGT, makes it hard to sell

 

Getting close to that certain age. Having held CBA for example ( and over weight banks) since they were around $15 bucks, you've nailed it right here. Future growth uncertain for sure, but way in front, excellent divvies (that may reduce a tad or stall) but why volunteer for a huge tax bill? Looking out 10 years, will they survive and do well once more? Very likely.

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  • 5 months later...

https://www.bloomberg.com/news/articles/201...ustralian-banks

 

Short interest has once again spiked in AustraliaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s biggest bank stocks, a trade historically so unsuccessful it was nicknamed the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“widow-maker.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“There are a lot of burnt fingers trying to short the banks,ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ said Le Brun. ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Many have tried and pretty much all have failed for a long time now. But fortune favors the brave and whether it turns into a profitable trade at some stage does remain to be seen.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

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you think these hedge funds have better resource and a lot smarter than us{ mums paps} right?? :lol:

i just can't understand that why heck they are keeps try this loss trade for so long?? :thumbdown::unsure:

 

 

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  • 4 weeks later...

..In a globalised financial system Australia's banks supplement their customer deposits with money raised from overseas investors.

 

If US interest rates do rise more quickly than people have been expecting then those investors are eventually going to shift their cash there to chase the higher returns.

 

As that happens, the Australian banks will have to offer higher interest rates to attract and keep enough money in their coffers to cover regulatory requirements.

 

If Australian banks are offering higher interest rates to depositors, they have two choices: cut profits or raise lending interest rates.

 

From your experience of how Australia's banks operate, which option do you think they will take?

 

http://mobile.abc.net.au/news/2016-12-15/f...-matter/8122662

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  • 4 weeks later...

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