Some interesting notes from Bank of Queensland, recovering from the first loss of an Aussie bankin two decades. Good times ending anyone?
Bank of Queensland (BoQ) says it will be at least another year before it sees any benefits from a lower Australian dollar.
While BoQ returned to profit in the year to August, after becoming the first Australian bank in two decades to incur a loss, it is taking a cautious approach to the year ahead.
The bank is heavily exposed to the tourism industry sensitive Queensland economy, which in turn is influenced by movements in the exchange rate (here).
And interestingly there's a foretaste of the schemes Aussie banks will resort to when times get really tough (no different to Spanish banks in fact who put some tax credits into assets on their balance sheet):
Meanwhile, the bank said it will team with other smaller lenders to lobby the federal government for changes in the banking sector, which is dominated by the big four players.
So after a week which saw journalists under attack for suggesting all might not be tip top for the Australian economy (Wayne Swan's Treasury note here and the denials about the shrinking Western Australian miracle here), there is now talk of QE as the short cut to restoring dollar competitiveness.
Readers all around will be familiar with the money printing in the US and UK which though lowering the respective exchange rates has corroded savings and stoked inflation. In Australia, a similar trade off putting ordinary Australians second to the finance sector looms and readers might consider it an open sign of failure by the Australian ruling class. That or a belated stumble to catch up in the currency war. Quotes below and stay tuned for more.
With the non-mining sectors of the Australian economy responding less promptly to lower interest rates than in history would suggest, and the A$ still at elevated levels by historical standards, in our view the chances of a smooth ‘baton change’ between growth led by resources investment and growth led by exports and other components of domestic demand are declining.(here)
It is early at this stage to tell how the skid to the rally in Australian banking stocks is likely to play out, but a quick skim of the headlines is enough to suggest a real evaporation in sentiment:
Dollar puts an end to banking's party
Our much-loved bank shares are coming under pressure, although at this stage it looks not so much a violent pricking of the bubble, but a gentle deflating like the forgotten balloon behind the couch after the raucous party (here).
and
Australian bank stocks fell the most in a year as investors sold out of a rally that had driven financial shares to a record high last month....The rally pushed bank shares to record highs with UBS AG (UBSN) analysts led by Jonathan Mott calling Commonwealth Bank the most expensive lender in the world on May 15.
“The market run has been so skewed towards high-yielding stocks and financials in Australia, and now with worries about China, foreign investors are withdrawing,(here)
and also:
Foreign investors dump big four banks
The Australian dollar faces further sharp losses in the next 12 months as it
rediscovers its historic link to commodity prices, analysts say.
The dollar sank to a fresh 11-month-low of 95.94 yesterday. It was trading at
96.8 US cents this afternoon following a rollercoaster overnight session....The revised forecasts from analysts come as HSBC flagged Australia’s entry
into the global “currency war”, which has seen central banks print billions in
cash to push their currencies lower (here)
Australia's four largest banks have been warned by Fitch Ratings that they need to improve their funding mix if they are to meet Basel III liquidity requirements and retain their coveted AA- credit ratings.
The banks have been told to scale back their dependency on offshore funding, bolster deposit levels and lengthen the duration of their wholesale funding.
Fitch warned the steps are especially necessary after the Australian Prudential Regulation Authority (APRA)earlier this week declined to push back the planned 2015 start date for new liquidity rules.
APRA's decision prompted Fitch to warn Australia's banks that they will have to meet liquidity coverage ratio targets by 2015 and net stable funding ratio targets by 2018, despite the revised Basel rules allowing phased implementation.
“Their reliance on wholesale funding, particularly from offshore markets, is high compared with international peers,” Fitch senior director Tim Roche said in a statement. (here).
...is getting plenty of attention. Here's some of the commentary:
It seems analysts are finally catching on to what we here at the Motley Fool have been saying for some time now. Share prices of the major banks have been inflated well past any measure of relative value.(here)
...and via the FT, via UBS:
The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure. However, following the significant leveraging of the Australian & NZ households over the last thirty years they are now low growth and remain heavily exposed to housing, funding markets & unemployment risk (here).
John Collet at the Sydney Morning Herald cared to disagree however:
Investors believe that lower interest rates are here to stay and the big bank profits add to their confidence....For Shane Oliver, chief economist at AMP Capital Investors, there is a risk of its becoming a bubble but "we are not there yet".
The banks are well managed and increasing their profits. One
risk would be if interest rates were to rise. But markets are expecting
the next move in interest rates to be down. (here)
The key phrase there being "well managed" - that will remain to be seen!
In addition to tracking any bank crisis which occurs in Australia, this blog will also try to look at any alternatives to the big banks, where savers can move their money.
So a good place to start is a post on the topic by savingsguide.com.au. A fair point that it makes in favour of building societies and credit unions is their narrower focus and conservative practices - in short they are not tainted by vast portfolios of toxic loans and vaults of alphabet soup securities:
...Though many credit unions and building societies have been around for many years, earning the reputation as sound platforms for financial management. Even St.George bank started out in the early days as a building society. So the answer is they are safe. They are highly regulated just like the banks, just without the numerous layers of fluff....(here)
