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The Banks
Does It Get Any Better For The Big Four?
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nipper
post Posted: Jul 31 2020, 10:28 AM
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Commonwealth Bank shareholders have escaped the harshest interpretation of the clampdown on dividends after the prudential regulator confirmed a new 50 per cent cap on payout ratios would only apply to second-half earnings and not the full year.

The new guidance to cap payout ratios at 50 per cent of earnings represents a softening of APRA's April edict to "defer" or "materially reduce" the payments but will hurt shareholders used to years of payout ratios between 75 per cent and 95 per cent.

The decision will see the second-half dividend payable to CBA shareholders capped at 50 per cent of earnings after collecting a normal first-half dividend before the crisis descended. First-half bank dividends that have been deferred, such as those from ANZ and Westpac however, will not be so lucky and will be subject to the new cap.

Prime Minister Scott Morrison said he welcomed the Australian Prudential Regulation Authority's announcement and its continued "fleet-footedness" during the crisis. It will ensure banks will have continued flexibility to be able to deal with the commitments that their clients have on their mortgages and business loans and things of that nature, Mr Morrison said.

Plato Investments managing director Don Hamson said while the update removed uncertainty around the payment of dividends, it was nevertheless a blow to shareholders who relied on them for income.
QUOTE
A 50 per cent payout ratio is substantially lower than the normal bank payout ratio," Mr Hamson said. In 2019, Plato estimates that the big four banks paid 30 per cent of gross dividends, including cash dividends plus franking, of the entire S&P/ASX 200.

APRA chairman Wayne Byres revealed the new instruction in a letter to banks dated Wednesday 29 July, where he ordered the lenders to moderate payments to shareholders for the rest of the year. The letter orders banks to limit profit payout ratios to 50 per cent for the year, however a small discrepancy between the letter and accompanying media release left observers unclear whether the guidance was for the second half or the financial year initially. Mr Byres spelt out the regulator's expectations in three bullet points, saying bank boards should seek to retain at least half of their earnings when making decisions on capital distributions, conduct regular stress testing and make use of capital buffers to absorb the impact of stress.
QUOTE
Although the environment remains one of heightened risk, we now have a stronger sense of how Australias economy and financial institutions are being impacted by COVID-19, Mr Byres said.

He said banks faced additional challenges to their capital resilience, citing the 800,000 loans they had deferred, the broader economic impact of COVID-19 and an order from the Reserve Bank of New Zealand for banks to suspend paying dividends to their parent banks in Australia. APRA has therefore set an expectation that dividend payout ratios for ADIs will be maintained below 50 per cent for this year, he said.

The prudential regulator wants banks to deploy capital buffers to support households and borrowers throughout the crisis. In the letter it said it expected banks to demonstrate ongoing lending capacity to the regulator as well.

The order from APRA follows renewed guidance from the European Central Bank overnight to extend the dividend and buyback freeze imposed on European banks in the wake of the crisis to January 2021. As the pandemic began unfolding in April, APRA took a comparatively softer line and instructed banks to seriously consider deferring dividend decisions until the outlook was clearer or pay them at a materially reduced level.

Following the April guidance, about $5 billion worth of bank dividends were held back with Bank of Queensland, ANZ and Westpac electing not to pay a dividend at the first half, while National Australia Bank slashed its dividend by 64 per cent. The order will see the level dividends paid out by the banking sector slashed in comparison with previous years but the impact across the banks will be uneven due to a range of factors, including the end of their financial year and capital position.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Jul 11 2020, 02:52 PM
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In Reply To: mullokintyre's post @ Jul 11 2020, 01:24 PM

The article I took that from went on with some sage comments relating to down the track; with some valuation metrics at 30 year lows, is already having set aside billions of dollars in provisions for potential losses enough, or is there more bad news to come?

Can the big four banks ride out the storm?

https://www.afr.com/wealth/personal-finance...20200708-p55a3j
QUOTE
The positive thing about Australian banks is that they have some of the strongest banking franchises on the planet, says Simon Hudson, head of equities at UniSuper. The difficulty is that the earnings environment is just so challenging. Given that all banks have heavily-leveraged business models by definition, I think the market is understandably very cautious.

The pandemic may well have long passed before the worst of the bad debts are recorded, if past recessions are any guide.

Usually the time to buy banks is when you think they're nearing the peak in bad and doubtful debts or theyll be nowhere near what the market is anticipating or pricing in, says Hudson. But history shows that peak bad debts can significantly lag the economic cycle. Things may be improving more generally but bank earnings and capital can still be under pressure. Its a testing time for any investor to see through this.




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
mullokintyre
post Posted: Jul 11 2020, 01:24 PM
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In Reply To: nipper's post @ Jul 11 2020, 11:28 AM

I have not had any of the Banks in portfolio for the past 18 Months.
And I am unlikely to add any for the next 18 months.
At least one of them will die.
Mick



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sent from my Olivetti Typewriter.
 
nipper
post Posted: Jul 11 2020, 11:28 AM
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QUOTE
Ausrtralian banks have had a dreadful time on the sharemarket over the past 12 months the second-worst performing sector, down close to 30 per cent and outperforming only the even more unloved energy stocks. Commonwealth Bank of Australia will give the next best insight into the new world of COVID-19 banking when it reports its full-year results on August 12.

CBA is the best-performing major bank over the past 12 months, with its shares down only 13 per cent compared with a 36 per cent fall for Westpac Banking Group. ANZ and National Australia Bank are both down 33 per cent. It remains the most highly-prized bank in Australia, trading at a hefty premium to the book value of its assets, indicating that investors still believe it can generate superior returns through the cycle. The other big banks are trading in line with, or at a discount to, the book value of their assets.

Its a far cry from the time when the banks were collectively generating returns on equity closer to 20 per cent than 10 per cent, justifying price to book multiples of closer to two times. The performance of the banks can be seen as a reflection of the health of the broader economy, and fears of a deep recession are taking its toll.
QUOTE
One of the biggest issues on the minds of potential investors during COVID-19 is the future economics of loan deferrals. Introduced by the banks in mid-March, loan deferrals were offered to both consumer and small and medium enterprise customers. Similar programs are in place for personal loans and credit card customers.

APRA said this week that almost 900,000 loans worth a total $266 billion had been deferred. Unpaid interest during this period is capitalised, meaning it is added to the customers outstanding loan balance to be paid over the remaining loan term.

This week the banks extended the maximum term of deferment to 10 months, or 31 March 2021, (whichever comes first), smoothing the curve of potential problem loans in the eyes of bulls but prolonging the potential peak in bad debts until 2022 in the eyes of the bears. Most deferrals were provided for an initial three-month period, with an option to extend for a further three months, and most banks have been undertaking three-month initial check-ins.




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Jun 9 2020, 10:32 AM
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one case, and a couple of reasons, for buying banks
QUOTE
"I believe there is a powerful confluence of forces that could see investors shift their attention to bank stocks.

First and foremost they have significantly under-performed the broader market and the hot growth stocks, particularly the so-called FAANG stocks.

Institutional investors have been underweight financials for some time, and for good reason.

In addition, and very importantly, we are seeing a steepening in yield curves as central banks powerfully anchor short term rates at zero.

The avalanche of government bond issuance and the reopening of economies will, all things equal, lead to a rise in long-term bond yields.

Financials as you know are a major beneficiary of a steepening in bond yield curves as it boosts their net interest income (borrow short, lend long.)

Bank are cheap in absolute and relative terms and hence have a cushion or margin of safety."




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Jun 6 2020, 09:25 AM
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COVID-19 through the lens of Major Bank 1H20 results

Summary

QUOTE
The underlying performance for the major banks was solid for the first six months of fiscal 2020 (1H20). Operating income was broadly stable half-on-half as largely flat net interest margins were met with soft, yet still positive, volume growth.

Performance will soften in the near-term as mortgage and other loan deferrals take effect in response to a rising number of furloughed individuals, although government support to date appears to be filling the gap left by a loss of income due to a lower number of hours worked. Provisions (credit losses) rose sharply in an attempt to reconcile with an uncharted outlook-a government-enforced shutdown, which is temporary in design, but whose impact will likely persist for years.

Further provisions may indeed be required as current levels are well-below those raised in the early 1990's when unemployment was last in double-digits. However, the composition of unemployment and unprecedented levels of forbearance and support from both lenders and the government is likely to temper that need, somewhat.

Capital preservation was the main focus as ANZ and Westpac took the unprecedented step of deferring payment of ordinary dividends to shareholders (NAB reduced its dividend by more than 60%). Although we expect dividends to resume in 2H20, we would not view as a base case that shareholders will recoup the deferred component. We would also not rule out further capital raisings, which would clearly benefit creditors.

The major banks provided base case and downside economic scenarios (year-end estimates for unemployment, output and house prices) and the impact of those scenarios and estimates on their respective regulatory capital ratios (a measure of their solvency).

The scenarios and estimates provided are not designed to provide a false sense of precision. However, they do provide us with a view of the capacity to absorb further provisions, if required. On this basis, we believe the major banks would have sufficient levels of capital to absorb a further increase in provisions as envisaged in modelled downside scenarios.

Given the capital headroom above the point at which an issuer would be required to either write-off or convert some or all of its subordinated debt to common equity, we believe the more severe risk to creditors of either deferred coupons (in the interim) or conversion/write-down of principal at a later point is very low. As such, we remain comfortable with major bank debt-Tier 1 hybrids and Tier 2 subordinated debt.
http://thewire.fiig.com.au/article/2020/06...nk-1h20-results



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

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nipper
post Posted: May 28 2020, 02:39 PM
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Last few days have been amazing
QUOTE
JP Morgan financial sector analyst Andrew Triggs says the impressive surge in Australian bank share prices this week is "long overdue", with the sector having underperformed the S&P/ASX 200 by 19 per cent from February 21 to May 25.

After a further rise of between 3.8pc and 6.1pc today, the four majors are currently up almost 20pc this week, so it could be said that its underperformance versus the index has been broadly corrected.

Mr Triggs says reasons for the recent strength include:
... reduced tail risk on the domestic economy;
... positioning is light, with domestic institutional investors net sellers of the banks in the three months to March 31 and heavily underweight financials;
....valuations are "undemanding" with unprecedented discounts to book value; and
... Quant fund rotation (from Growth to Value).

"Whether the recovery continues remains to be seen but 1x price-to-book value may be a "ceiling" in the short-term (ex-CBA) given ongoing uncertainty and structural headwinds the sector faces," Mr Triggs says.

In his view NAB is best positioned to benefit from a "less bad" domestic economy, he has an overweight rating on the stock. Westpac is preferred over ANZ in his major bank pecking order, with CBA the bottom pick at Underweight.

... wow, no-one banging on about 'overweight mums and dads"

....
QUOTE
It's been a long time since the financial media in Australia have used words like stunning, staggering and astonishing in the same sentence as Australian banks.

[Yester]day's Chanticleer column in the Australian Financial Review used all three of these adjectives.





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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: May 4 2020, 07:45 PM
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Tricky times, but so far so good
QUOTE
The banks are battening down the hatches for a hard slog out of the crisis and boards have had to delicately balance the interests of retiree shareholders reliant on dividend income with banking regulator's demand that they maintain capital strength.

Ratings agencies have backed the banks' focus on stability and strength. After the Westpac result, S&P Global Ratings said a “strong capital base, its decision to defer its interim dividend and the strength of its domestic banking franchise provide a good buffer for the Australian major bank to absorb higher loan loss provisions".




--------------------
"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Apr 11 2020, 10:12 AM
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Lower dividends and no capital management look very likely in 2020 and beyond for banks, listed insurers and other financial groups for the rest of 2020

QUOTE
APRA, the financial regulator, has told banks, insurers, and other financial groups to think carefully about deciding whether dividends can be paid to shareholders over the rest of this year and into 2021.

Companies will have to be sure that paying a dividend won’t damage the company’s financial strength and when a decision is made to greenlighted a payout, it will have to be lower and dividend reinvestment plans will have to be used to lower the cash outflow wherever possible

The statement means APRA has joined the Reserve Bank of New Zealand, the Bank of England and European Central Bank in telling banks and financial groups to limit or suspend dividends and capita management plans such as buybacks.

The RBNZ, Bank of England and ECB have gone as so far to tell banks not to payout dividends, while APRA’s advice is less firm, but it is obvious that it is directed at the major banks, three of which ... NAB, ANZ, and Westpac .... balanced their half years on March 31 and would now be starting to look at interim dividends.

Those banks will now either not pay dividends, or reduce current payout levels and try and encourage shareholders to take up the DRPs.

Macquarie Group balanced its 2019-20 financial year on March 31 as well and would fall into the same target group, while the Commonwealth doesn’t escape even though its 2019-20 financial year doesn’t balance until June 30 with the final dividend set in August.

Bendigo and Adelaide is a regional bank in a similar position, while Bank of Queensland, Suncorp (with Metway Bank), and insurers such as QBE, IAG and Suncorp’s brands are all in a similar target group to the bigger financial groups.

In a letter to ADIs, general insurers, life companies, and private health insurers, APRA outlined its expectations that these institutions limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends.

APRA said in its letter that because banks and other financial groups play an important part in the economy, it “expects ADIs and insurers to limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance.”

“This includes prudent reductions in dividends, taking into account the uncertain outlook for the operating environment and the need to preserve capacity to prioritise these critical activities.”

“Decisions on capital management need to be forward-looking, and in the current environment of significant uncertainty in the outlook, this can be very challenging. APRA is therefore providing Boards with the following additional guidance.

“During at least the next couple of months, APRA expects that all ADIs and insurers will:
- take a forward-looking view on the need to conserve capital and use capacity to support the economy;
- use stress testing to inform these views, and give due consideration to plausible downside scenarios (periodically refreshed and updated as conditions evolve); and
-initiate prudent capital management actions in response, on a pre-emptive basis, to ensure they maintain the confidence and capacity to continue to lend and support their customers.

During this period, APRA expects that ADIs and insurers will seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer.

However, where a Board is confident that they are able to approve a dividend before this, on the basis of robust stress testing results that have been discussed with APRA, this should nevertheless be at a materially reduced level. Dividend payments should be offset to the extent possible through the use of dividend reinvestment plans and other capital management initiatives.

APRA also expects that Boards will appropriately limit executive cash bonuses, mindful of the current challenging environment.

https://www.sharecafe.com.au/2020/04/08/apr...s-to-dividends/



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
early birds
post Posted: Apr 2 2020, 09:24 AM
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https://www.afr.com/companies/financial-ser...20200402-p54g9p

The Reserve Bank of New Zealand ordered Australia's big four banks, which dominate the banking sector there, to stop paying dividends back to their parent banks in Australia, to build up more earnings to protect its economy from the COVID-19 crisis.

The move by New Zealand regulators, which have taken a hard line on the Australian owned banks, follows similar moves by regulators overseas to restrict distributions to shareholders to ensure banks are strong enough to withstand growing losses as businesses shut down due to the coronavirus struggle to repay debts.

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thumbdown.gif where we living???????????



 
 


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