Bankers blowing hot air

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? 

Debt junkies

An excellent analysis by Leith van Onselen on the reported comments by NAB head Cameron Clyne as to the need for more debt.  While it is true Australia's public debt markets are small (and this is a product of the history of Australian government funding), it is spot on of Leith to point out the hypocrisy of a state guaranteed bank sitting on a private debt book which Moody's and other rating agencies have expressed concern to shout for more.  As Leith notes private debt in countries like US and UK can be a big risk:

That said, there remains a vulnerability that virtually nobody on either side of politics, the mainstream media, or the mainstream economics profession will acknowledge – one that is far more pervasive than concerns about public debt: Australia’s heavy private debt load. As shown by the below chart from McKinsey Global, while Australia’s public debt levels are low, our household debt is amongst the highest in the developed world, with most of that invested in pre-existing housing (here)

If Australian banks are anything like their international peers then they gorge on cheap government funding and speculate while holding out little to their depositors (and to become less when they price in the cost of the levy).  But still they ask for more...

Times changing for big Aussie banks...

Some details about CBA and ANZ shifting their strategies to meet new challenges - CBA stripping back its balance sheet to meet stricter capital requirements (although question if a recent private wealth scandal had anything to do with it) and ANZ looking to expand beyond Asia.

But changing is hard to do and to what extent will problems in the core outweigh any escape attempts at the periphery? Mutterings of increasing mortgage insurance costs don't bode well.

Interestingly though there seems to be a divergence between those with a domestic focus at the moment (CBA and Westpac) and those focussing overseas (ANZ and NAB).  It was noted previously that CBA and Westpac have larger domestic lending books and as this article indicates they are busier than ANZ and NAB due to integration of their Australian subsidiary groups (BankWest, Bank of Melbourne, St George, Bank of SA).

In the event of Ozzie contagion could it be that ANZ and NAB survive better due to less local exposure? Could be worth a study of long/short strategies!

Tall tales

There is a level of confusion as to the state of the Australian economy and likely risks and even those at the top can't agree.

...Three of Australia's big four banks have given market updates this month. You'd be forgiven for wondering if they were discussing the same market....The discrepancy in viewpoints is partly explained by the different business models of the three banks. Commonwealth Bank is the country's biggest retail lender, which means it benefits most from rising consumer confidence....
.
..NAB and ANZ are both more exposed to business lending, where sentiment is weaker. A survey from East & Partners, for instance, last week found that demand for all types of business banking services fell between November and January by an average of 1.9%....Despite their differing outlooks, investors overall still seem to like Australia's banks, deemed to be among the most credit worthy in the world. (here).

Yet meanwhile the central narrative underpinning the actual (or purported) growth was in fact being unwound by the central bank, the RBA:

...The Reserve Bank of Australia (RBA) says the mining investment boom will peak sooner and at a lower level than previously expected.

The central bank also says that while commodity prices are likely to drift lower over the next few years, Australia will continue to benefit from China's economic expansion...."And as mining investment tails away, we'll increasingly move into the operational phase of the mining boom," he said.(here)

Just to spell it out - the mining boom has been and gone....and there is not so much to prop up the Oz economy...