Thursday, 5 September 2013

Precious Aussie banks

Only a week after a series of headlines celebrating the renaissance of Australian banking with the major banks' high share valuations it is interesting to see signs that all is not well.

Firstly a downgrade from Moody's on certain subordinated debt:

GLOBAL credit ratings agency Moody's has followed through with a threat to downgrade billions of dollars in subordinated debt issued by Australian banks due to "bail in" risks, as global regulators take a harder line on bank bail-outs. 
After kicking off a review in June, Moody's yesterday downgraded the subordinated debt ratings and some junior subordinated debt ratings for Basel II-compliant securities of eight Australian banks.... 
The ratings of the big four banks -- the Commonwealth, Westpac, National Australia Bank and ANZ -- were lowered by two notches, while the regional banks -- Bank of Queensland, Bendigo and Adelaide Bank and Suncorp -- were cut by one notch.(here)
And meanwhile markets are pricing Aussie banks as more risky as well:

...over the past month, Australian bank CDS prices have jumped again and fast. As of Friday prices were back above 100 at 108. This has transpired within the context of the sudden jump in yields in everything from US Treasuries to Brazilian junk bonds. But it should be noted that Australian bank CDS prices have risen much further than those of comparable major banks in other developed nations, almost 50% in a month. This is a  legacy of our particular dependence upon offshore wholesale funding such a leap is in some measure also a reflection of the sudden realisation in global markets that Australia is not the miracle economy it thought it was, CDS prices being the reverse of what’s being expressed in the falling Australian dollar.(here)

Arguably two signs of the same coin with deteriorating conditions for Aussie banking? 

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