Nothing like some reassurance from bank bosses. Seems to be the fashion at the moment. Not that the heads of Australia's Big 4 banks would be concerned about business conditions is it?
Can the bankers really be trusted to proclaim that there is no problem in the markets which they profit from?
From ANZ (in respect of the New Zealand market but you can bet the thinking is the same in Australia):
ANZ chairman John Morschel has labelled New Zealand's new rules to cool its property market a "sledgehammer to crack a walnut", but conceded the Reserve Bank of Australia was potentially staring down a similar problem, in a wide-ranging speech today (here).
Then from the head of the big cheese, Commonwealth Bank helpfully suggesting the good times might not last:
Commonwealth Bank of Australia Chief Executive Officer Ian Narev, head of the country’s largest mortgage lender, said the nation’s banking industry needs to be watchful of house price increases to avoid a bubble.
While current home price gains are justified by supply and demand fundamentals, the impact of an extended period of low interest rates should be monitored, Narev told reporters after a speech in Melbourne today.
“We’ve got to realize that if we are in a sustained period of low interest rates, it is something we have to keep our eyes on,” he said. (here)
And then giving the game away perhaps is NAB head, Cameron Clyne begging for no interest rate rises (which could be a fair call but for other reasons related to hot money flows):
National Australia Bank chief executive Cameron Clyne said the central banks must adopt a neutral stance until it gets some clear evidence the recent lift in business and consumer confidence, following the election of the new Coalition government, is translating into real economic activity.
So, Australia's supposedly strong banks might just be a bit worried about a coming housing slowdown. Of course they wouldn't want to come out and just say it would they?
It has been noted before that Australia's major banks have been experiencing high valuations, profits and share prices recently. A glowing endorsement in the Wall Street Journal had the Commonwealth Bank as the most expensive bank in the world, with the other three majors (Westpac, NAB and ANZ) along with Macquarie as in a stellar performing group:
CBA’s tangible book value of 3.6 times is also the highest in the world, according to UBS analyst Jonathan Mott.
Australia’s banks remain some of the sturdiest in the world owing to their conservative loan books and the strength of the local economy, which hasn’t been in recession since the early 1990s (here).
But there are warning signs too:
Behind the strong headline results, however, Australia’s banks are struggling to maintain profit growth as the country’s resources boom starts to fade. Investment in resources, such as natural gas or iron ore for export to Asia, has been an engine for the economy over the past decade.Much of the boost to bank profits has come from cost-cutting and falling bad debt charges, which analysts say will lose momentum in the coming year. Revenue growth and demand for credit have remained weak.
And the Sydney Morning Herald has been reporting on the banks squealing about the potential loss of an offshore tax break, which has been helping them boost profits:
The chief executive of the Australian Bankers’ Association, Steven
Munchenberg, said the changes appeared to go beyond what was necessary to
protect the integrity of the tax system.
‘‘Our initial assessment seems to suggest they have gone a bit far,’’ Mr
Munchenberg said. ‘‘The measures announced last night appear to go beyond what
seems to be necessary for integrity purposes.’’(here)
and some details:
The budget released Tuesday said the offshore banking unit regime will be
tightened as it looks to confine the deduction to genuine mobile financial
sector activities. This measure is estimated to save an extra $320 million in
revenue over the next four years.
A big user of offshore banking units in recent years has been Macquarie
Group, which has seen its deductions runs into the hundreds of millions,
including $303 million in financial 2008. But the bank has been winding down
this activity since the financial crisis.(here)
As seen elsewhere - bankers are hard to please (and quick to disappoint)!
A good set of results out for the Commonwealth Bank of Australia, now thanks to favourable encouragement from the regulator and the lopsided economy, one of the largest banks in the world:
In an unaudited trading update Wednesday, Commonwealth Bank reported net profit of 1.90 billion Australian dollars (US$1.88 billion) in the three months to Mar. 31, up from A$1.70 billion a year earlier. The lender is Australia's largest by market value.
Cash profit, which smoothes out one-off items, was also A$1.90 billion, compared with A$1.75 billion a year earlier and A$1.85 billion in the immediately preceding quarter....
...Their shares have been among the best-performing on the Australian stock exchange as investors have flocked to their high-yielding stocks. Commonwealth Bank and Westpac topped the A$100 billion value mark this month, at one point making each worth more than the Australian listing of the world's largest mining company, BHP Billiton (BHP).(here)
But note some words of gloom looking forward for the sector:
But behind the headline results, Australia's banks are struggling to keep growing profit amid slowing economic growth. Together, the revenue of the big four banks was largely flat from a year ago, while much of the profit improvement came from cost cutting and a reduction in combined bad debt, which fell 17% from the previous half.
Credit Suisse analyst James Ellis said the lender's result was "supported by a cyclically-low bad debt charge" and pointed to worse times ahead for Australia's banks.
"For the sector the result suggests that the optimisation of bank earnings is reaching its limit, with bad debt charges as feasibly low as they can get, margin expansion and the pace of productivity improvements fading," he said in a note to clients.
The article also mentions declining business confidence, capital levels and the end of the mining boom as factors at play.
Meanwhile a new Occupy-style movement is reported to be stirring in the UK (http://breakupthebanks.org.uk/). When things start to go wrong will there be significant protests in Oz against the banks?
