CBA too big to fail and to jail?

A Hat tip to the Australian Property Forum for its coverage of the ongoing Bankwest/CBA scandal.  In case you missed it Bankwest was a victim of the GFC and after the insolvency of its English parent, HBOS was taken over by CBA.  While previous coverage had focussed on malpractice at Bankwest (such as this Four Corners special here).  The other issue is CBA's handling of the takeover and how it may have committed fraud to extract further value from the takeover, at the cost of Bankwest customers.

The following video provides a nice diagram and explanation - here.  The coverage on the Australian Property Forum is here.

As has been pointed out in the above sources this raises several disturbing questions:

- if such behaviour has not been prosecuted, when crisis hits the Oz banking sector again (GFC2) surely it will happen again and entrap more customers at different banks?

- given CBA is now the 7th biggest bank in the world and has released glowing results (here) surely this will mean it is even less likely to be prosecuted and more likely to continue its conduct?

As the video notes - Australian bank customers need to beware - they will not necessarily be safe from Australian banks!

Oz banks - on the edge of the precipe

Or as the Financial Times' Lex Column put it - Australian lenders could, with a downturn in the economy - suffer what it termed an "Oz-pop".  Noting the sector's current strengths, banks unlike property developers have not written down the value of their  loan portfolios collateralised by residential properties (for which Australia is one of the most overvalued markets globally according to the Economist).

....The markets of the world are littered with the victims of housing bubbles – those that bet against them too soon as well as those that did not see them coming. Australia is no different. Developers are writing down land values but the big banks, which rely heavily on homeowners for profits, are still investor darlings...

....[Commonwealth Bank] has the sort of stodgy balance sheet regulators everywhere now praise as the model [vast majority home loans and local]. But if the Aussie housing market stumbles, so will its big lenders and market headway from here looks uncertain at best. Stockland and Mirvac, two large developers, have knocked a combined A$600m off the value of their properties in the past fortnight....(here).

Flipside of depositholder gouging

The Reserve Bank of Australia has continued its campaign to shame Australia's large banks to pass on interest rate cuts by pointing out that the banks' argument of rising funding costs is baloney.  On the flipside however, it is interesting to note that wholesale funding costs are not getting cheaper and that this only highlights the dependence Australian banks have on overseas funding - not a great position to be in entering a currency crisis.

...The big four banks, ANZ Bank (ASX: ANZ), Commonwealth Bank (ASX: CBA), Westpac Banking Corporation (ASX: WBC) and National Australia Bank (ASX: NAB) have repeatedly cited wholesale funding costs as one of the prime reasons for not being able to full pass on the RBA’s cuts to the official cash rate....Additionally, in an election year, the banks may come under sustained pressure to pass on in full the RBA’s cuts to mortgage borrowers. RateCity estimates the banks have passed on 1.33% of the RBA’s 1.75% cuts to the cash rate since November 2011 (here).

....There has been speculation in recent months that a recent slide in wholesale funding costs would give Australian banks room to cut mortgage lending rates in 2013.....But, in its quarterly Statement on Monetary Policy, released on Friday, the RBA said bank's overall funding costs were relatively unchanged, compared to late 2012....The RBA said although the cost of unsecured and covered bonds had fallen in recent months, making it cheaper for banks to source funding though those avenues, banks were still paying higher rates for previously issued bonds (here).