A Gough moment?

"Well may they say god save the surplus, but nothing can save the Prime Minister" was not said by former prime minister Gough Whitlam, but is the message from recent piece in the diplomat:

...Australia may be set for a record 22^nd straight year of economic expansion, but it will not save the federal budget or Prime Minister Julia Gillard’s job. That was the message from the latest economic data along with an election in West [sic] Australia state, where voters handed Gillard’s Labor Party another drubbing....

...while real (after-inflation) GDP met expectations, nominal growth only expanded by 0.5 percent in the quarter and 2 percent from a year earlier – well below the government’s previous forecasts....“It is unusual for nominal GDP to grow this slowly, and this continues to drag on the government’s revenue collections,” Swan admitted....(here)

More on the RBA backstop

Excellent piece from Chris Joyce on the RBA Backstop.  Question is does it show the full extent of the weakness of the Australian banks in their descent into crisis or is this the pre-emptive strike to hit out at the markets?  Yes Aussie banks are vulnerable coming off good times due to their reliance on wholesale funding, but will the RBA's actions be enough?

...In a globally unique policy, the Reserve Bank of Australia will supply banks with a permanent bailout facility worth up to $380 billion by 2015....The policy has been designed by the RBA to help banks satisfy stringent new liquidity tests which simulate “acute stress scenarios” that deny banks funding for 30 days under the post-GFC rules, Basel III....Local regulators argue that insufficient liquid assets such as government bonds meant they had no choice but to give the banks a new taxpayer-backed “line of credit” that could be tapped at a cost just above the RBA’s cash rate. Smaller building societies and credit unions are not subject to the liquidity tests and will not, therefore, have access to the bail-out fund....

...The Australian Financial Review has been told that the Swiss-based Basel Committee, which is the supra-national regulator of bank regulators, was initially opposed to what is known as the “Australian solution”. Only one other country, South Africa, has emulated it, although Singa­pore is evaluating it....

...With actual leverage of roughly 26.5 times, a 4 per cent fall in asset values would, on average, wipe out the major banks’ capital. While the banks are regarded as being durable institutions, it does not take much duress to invoke solvency threats. The Basel Committee’s second finding was that banks should hold more liquidity in the form of high-quality liquid assets to pay out depositors and wholesale bond holders during times of stress....(here)

ANZ in a bind

Readers may have spotted commentary about ANZ had released results recently which showed it was under greater pressure than some of its rivals (including CBA which managed to scoop up Bankwest for a song).  And not surprisingly come the job cuts...

...Australia & New Zealand Banking Group Ltd. (ANZ), Australia’s third-largest bank by market value, plans to cut about 50 jobs in institutional and international banking as lenders trim costs amid weak credit demand....Australian banks have relied on staff and pay cuts to protect profit as they confront the weakest demand for home lending since 1977. In 2012, ANZ announced plans to shed 1,000 jobs by September of that year as part of Chief Executive OfficerMichael Smith’s efforts to offset slumping loan growth (here)

But in fact all banks are trimming...

...Commonwealth Bank of Australia, the nation’s biggest lender by market value, will freeze base salaries for people making A$150,000 or more in its institutional banking and markets division, an internal memo showed in July....Westpac Banking Corp. (WBC), eliminated more than 500 roles early last year. National Australia Bank Ltd., is scheduled to brief investors on its technology program and its cost management plans on March.13.

Property got hot...

A question of who is resourced when it comes to extra-judicial muscle...

...Fairfax Media has found desperate companies are increasingly hiring self-described ''mediators'' like Ray ''Rugby'' Younan, James ''Big Jim'' Byrnes and Alex ''Little Al'' Taouil to resolve and collect debts....A series of high-profile multimillion-dollar bankruptcies over the last two years has created a domino effect resulting in out-of-pocket sub-contractors employing people with questionable pasts to chase debts for them....

...The Australian Securities and Investments Commission found one in four building companies go bust, the worst figures for any industry, with a total of 1113 insolvencies reported last year. Mr Parker said ''hoons and goons'' have always been in the building game but the economic downturn has made some builders ''do desperate things''. (here)

A splintered backstop for Oz banks

Great piece in AFR analysing the nature of the RBA's commitment to backstop Australia's large banks in case of emergency.  As has been so problematic in Europe, it seems the central bank is on the hook, and early.

...The Reserve Bank of Australia’s unique Committed Liquidity Facility – a little-known, taxpayer-backed “line of credit” to help banks overcome solvency crises – creates as many problems as it is intended to address. And it is not clear officials have thought these through....

...The Australian Prudential Regulation Authority appears to understand this nuance [of solvency]. Officials acknowledge that if a bank needed to draw on the CLF, it would be trading insolvent under the Banking Act in the absence of the taxpayer support, irrespective of whether it had “positive net worth”....The Committed Liquidity Facility opens a Pandora’s box of problems. The most obvious concern is that it inverts the logic of the Basel Committee’s post-GFC policy remedies by entrenching taxpayer loans as a first, rather than last, line of defence against bank collapses. (here)

Oz Banks face headwinds

...Fitch Ratings says a likely modest weakening in Australian banks' operating environment during 2013 is unlikely by itself to result in negative rating action. A more severe downturn could drive negative action although this is not the agency's base case. In a report published today, Fitch says it expects Australian banks' profit growth to come under pressure in 2013, due to likely subdued credit growth and a potential rise in impairment charges. However, loan losses should easily be absorbed by pre-impairment operating profits, as Australian banks are, and should remain, among the most profitable in the world... (here)

...S&P said that the outlook for the AA- rating held by the big four banks is “stable”, but warned there was a greater chance of a downgrade in 2013 than an upgrade....

“While our most likely scenario for the Australian banking sector in 2013 is continued ratings stability, we note that there remains downside risk, and we cannot discount the possibility of negative rating momentum,” the S&P report said, according to the AFR....(here)

Real victims in currency wars

While the RBA and the banking industry have been showing off their resilience to the ebbs and flows of currency markets, in the space of the real economy, real businesses are going to the wall. 

Focussing on the iconic sauce maker Rosella this Bloomberg piece said:

....Rosella’s receiver today said it was unable to find a buyer and will shut the saucemaker, leaving 70 workers without a job. The failure -- along with receiverships at book seller Angus & Robertson, founded in 1884, and Allans Music, in business for 16 decades -- illustrate Australia’s lopsided economy. A mining- investment boom is delivering the quickest growth in the developed world even as it masks other weaknesses....

....“It’s disappointing that these Australian icons are either disappearing or being severely diluted and undermined,” said Kumm, who spoke before today’s announcement. His great- grandfather Frederick Cato helped found the company in 1895. “We’re used to seeing those things on our shelves and there’s a sense of belongingness.”....

Bob Gregory, a professor at Australian National University in Canberra and former central-bank board member, predicts joblessness will worsen this year. The investment phase of the mining boom, which has been construction-oriented, will wane and government-budget cutbacks will curb infrastructure projects, hurting workers without college educations, he said....Some blue-collar enclaves in Australian capital cities already have unemployment approaching recession-plagued Spain’s record 26 percent...(here)

Meanwhile for another consumer retail business, footwear there was also bad news:

...SHOE Superstore is the latest retailer to fall into administration as the chief of parent company RCG Corporation warned that some sections of the consumer market were still reeling from the impact of the global financial crisis....RCG put Shoe Superstore, which includes nine stores employing about 50 staff, into the hands of administrators yesterday, less than four years after it acquired the business... (here).