Tag Archives: NAB

Westpac, NAB Survive On US Federal Reserve Life Support

24 Dec

BREAKING NEWS

UPDATE: Aggregate balance of US Fed loans to Westpac = USD87.52 billion, NAB = USD378 billion (csv file 1e_Fed Dated Estimated Income Ranking Text Only)

From Bloomberg:

Fed’s once-secret data released to the public

Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.

To download a zip file of the spreadsheets, go to http://bit.ly/Bloomberg-Fed-Data. For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”

The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.

“Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank.

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.

As we saw in “Our Banking System Operates With Zero Reserves”, a previous data release showed that Australian banks … including the Reserve Bank of Australia … secretly borrowed billions from the US Federal Reserve to survive during the GFC. In the case of the RBA, the value of its loans totalled around AUD88 billion given the exchange rate at that time:

National Australia Bank Ltd, Westpac Banking Corp Ltd and the Reserve Bank of Australia (RBA) were all recipients of emergency funds from the US Federal Reserve during the global financial crisis, according to media reports.

Data released by the Fed shows the RBA borrowed $US53 billion in 10 separate transactions during the financial crisis, which compares to the European Central Bank’s 271 transactions, according to a report in The Australian Financial Review.

NAB borrowed $US4.5 billion, and a New York-based entity owned by Westpac borrowed $US1 billion, according to The Age.

This new data release allows us to see more detail about the secret loans to Westpac and NAB.

Two of the four pillars of our allegedly “safe as houses” banking system.

And now we can see that it wasn’t just a “New York-based entity owned by Westpac” that borrowed from the Fed. It was Westpac itself.

Between 20 Dec 2007 and 16 Jan 2008, Westpac secretly borrowed USD90 million per day from the US Federal Reserve.  Between 9 Oct 2008 and 1 Jan 2009, Westpac borrowed USD1 billion per day. For a total of 113 days, Westpac was surviving on daily loans from the US Fed:

Click to enlarge

For a total 252 days straight, between 6 November 2008 and 15 July 2009, National Australia Bank survived by secretly borrowing USD1.5 billion per day from the US Fed:

Click to enlarge

[Don’t forget that during the GFC, the AUD plummeted from 98c to the USD, to 60c … where the RBA actively bought AUD’s in order to keep it propped at 60c. So these USD quoted loans were in fact dramatically higher when considered in light of the relative value of the Aussie dollar at the time]

Half of our “Four Pillar” bankstering system survived on USD2.5 billion per day of US Fed-supplied life support during the peak GFC “fear” period … and in NAB’s case, for many months afterwards.

And all on the hush hush.

We’d never know about it, except for Bloomberg News taking the US Fed to court when they refused an FOI request for the information.

How’s your con-fidence in our AAA-rated Ponzi now?

If you’ve not read it yet, and if like most Aussies you are oblivious to the hushed up bank run that was occurring right here in Oz during the GFC, then you should take the time to read my June 24 blog, “Our Banking System Operates With Zero Reserves”:

Ian Harper, one of Australia’s leading financial economists, spent much of the weekend of October 11-12, 2008, reassuring journalists that Australian banks were safe.

But there was something about the calls Harper was getting from reporters over that weekend that worried him.

“There was a whiff of panic,” he recalls. It had been building all week. He had no doubt that the government and the Reserve Bank would be able to manage a run on cash, but it might take days to arrest. Panic has been an unpredictable force in the history of banking. And the instant world of electronic banking had never been tested with a full-scale crisis of confidence.

He talked about media calls with his wife. “Come Monday morning and they tell us one of the banks is in strife and internet banking is down, I can’t look you in the eye and say you can pay this week’s grocery bills.”

The man who had just been reassuring everyone there was nothing to worry about went down the street to the ATM and made a sizeable withdrawal to make sure his wife would have enough cash.

All around the country, banks were facing unusual demands for cash. Small businesses in Queensland and Western Australia were switching their deposits from regional banks to accounts with the big four banks.

An elderly woman turned up in the branch of one bank in Queensland with a suitcase and asked to withdraw her term deposits of $100,000 or more. Once filled, she took the suitcase down to the other end of the counter and asked that it be kept in the bank’s safe.

A story did the rounds of the regulators about a customer who wanted to withdraw his six-figure savings. The branch manager said he did not have that quantity of cash on hand, but offered a bank cheque, which the customer accepted, apparently unaware that the cheque was no safer than the bank writing it.

It was a silent run, unnoticed by the media. Across the country, at least tens and possibly hundreds of thousands of depositors were withdrawing their funds. Left unchecked, there would soon be queues in the street with police managing crowd control, as occurred in London at the Golders Green branch of Northern Rock a year earlier.

“With a bank run, or any rumour of a bank run, you can’t play games with that,” says Treasury Secretary Ken Henry.

“You can’t pussyfoot around that stuff. It’s a long time since Australia has had a serious run on a financial institution, but it’s all about confidence, and you cannot allow an impression to develop generally in the public that there is any risk.”

Now, what was it that I wrote just hours ago … about our AAA-rated Ponzi economy?

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Starve The Beast

17 Oct

In observing the “Occupy” movement now growing around the Western World, your humble blogger recalls an old wisdom story, attributed to a Native American elder:

“Inside of me there are two dogs. One of the dogs is mean and evil. The other dog is good. The mean dog fights the good dog, all of the time.” When asked which dog wins, he reflected for a moment and replied, “The one I feed the most.”

On the weekend I was reminded of this wisdom, upon reading the following article in Australia’s Sunday Telegraph:

Banks are handing out bonuses to staff who upsize your debt

BANK staff are being offered Christmas party bonuses, free meals and other prizes to push more credit cards, loans, insurance policies and other products to customers.

Australia’s biggest lender – the CBA – has launched a “double up” campaign to push personal bankers and tellers into selling twice as many products, such as increasing credit limits, each week.

The other three major banks – the NAB, ANZ and Westpac – are also forcing branch staff to meet stringent weekly sales targets as the “big four” battle for market share.

An internal CBA document obtained by The Sunday Telegraph reveals the pre-Christmas push to supersize customers – increase their credit limits, convince them to take out home and contents policies and open up new accounts.

“We are under increasing pressure from competitors who are looking for a greater share of our retail banking business,” CBA retail banking boss Ross McEwan says in the document.

The briefing reads: “The campaign encourages sales teams to double their sales productivity during October and November to earn double the fun (and funds) at their end of year team celebrations.”

Staff at the four major banks, which are expected to record a combined profit of $24.2bn this financial year, have also revealed the tactics used to win over customers.

Sales targets differ depending on the branch size and location. Convincing a customer to roll their credit card debt into their mortgage is a target winner.

At Westpac, each personal banker has a revenue target of about $3750 a week.

Selling a credit card earns $150 towards that goal. At NAB, a city branch with four staff would have to sell 72 products a week, while a teller has to make 10 “quality” referrals to personal bankers that result in a sale.

Personal bankers have to sell 13-16 items. Debt products are worth the most because they are more lucrative for the bank.

All banks encourage staff to “cross sell” so when a customer opens a savings account, staff are likely to offer an increased credit card limit or income protection insurance.

“Staff get really desperate, to the point where they will convince customers they need something when they really don’t,” a Westpac staffer said.

Even more telling, the small inset story accompanying this article, in the paper’s print version:

Bank staff say their targets are so high and unrealistic they are selling customers products they don’t need or can’t afford.

Staff from Commonwealth, Westpac, ANZ and NAB describe work as a pressure cooker and say they are forced to meet stringent targets – a claim all four banks categorically deny.

Workers say white boards are used in branches to track sales.

“We don’t want to be pushing debt on to people but you have the pressure of your job security hinging on it,” a CBA staffer told The Sunday Telegraph.

“A home loan is a life long debt. We shouldn’t be selling it like a box of crackers.”

After three years as a CBA teller, the “cut-throat” environment became too much for 20-year-old Tyson Adams.

“The whole time your target is being pushed on you really hard and it is never negotiable … it doesn’t even matter if you are off sick, you have to make it up.”

An NAB worker said” “It is not about whether you are great with the customers; at the end of the day it is how much you have either referred or you have sold.”

A Westpac banker said: “They give us lists of customers who have almost paid out their home loans so we have to call them and get them to borrow more, go get an investment property or something.”

Your humble blogger has a word of advice for the growing thousands in the “Occupy” movement, who are (apparently) protesting against Greed.

Just DON’T Do It.

Borrow, that is.

They say that “money makes the world go ’round”.

They lie.

Our world runs not on “money”, but on debt.

Your agreement to borrow is The Beast’s daily bread.

In the old Native American wisdom tale, the winner in the fight of good versus evil was the one that he fed the most.

A simple, alternative view of the same tale, is that the loser is the one we feed the least.

Starve The Beast.

“After these things I saw another angel coming down from heaven, having great authority, and the earth was illuminated with his glory. And he cried mightily with a loud voice, saying, “Babylon the great is fallen, is fallen, and has become a dwelling place of demons, a prison for every foul spirit, and a cage for every unclean and hated bird! For all the nations have drunk of the wine of the wrath of her fornication, the kings of the earth have committed fornication with her, and the merchants of the earth have become rich through the abundance of her luxury.”

And I heard another voice from heaven saying, “Come out of her, my people, lest you share in her sins, and lest you receive of her plagues.”

* Please see also “The People’s NWO: Every Man His Own Central Banker”

UPDATE:

Paying down (y)our debt, and refusing to take out more, is the fastest way to kill the Beast. Most people don’t even realise that the simple act of paying down debt (and not taking out more) reduces the banks’ “assets” on their balance sheet. Eventually, all they have is Liabilities (your actual savings, plus outgoing interest payments owed to you on your savings) … and no Assets.

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It Begins – Opposition Takes Up The Fight Against The Bankster Class

15 Jul

At last, dear reader.

It begins.

The Opposition beginning to highlight the real purpose behind the global push for trading “hot air”.

The enrichment … and further empowerment … of the global bankster class –

Note that well:

But one of the things that I really want to draw people’s attention to today is the fact that we are learning more and more about just how much money is going to go overseas under this tax. It was obvious on Sunday that in 2020 more than $3 billion was going to go overseas to foreign carbon traders to meet the Government’s emissions abatement targets but if you go out just 40 years to 2050, no less than $57 billion of Australian money is going to go overseas to line the pockets of foreign carbon traders. Within a relatively short time, more than one per cent of Australia’s GDP is going to go overseas to line the pockets of foreign carbon traders. Now, all of us want to help the environment but a get-rich-quick scheme for foreign carbon traders is not the kind of environmental assistance that Australians want. So, I just think that as each day goes past and more details of the Government’s carbon tax package become apparent the less the Australian public like it.

I hope that readers will forgive me a little moment of fantasy. A small, petty indulgence.

In my imagining the teensy possibility that my discussion with Senator Joyce just 2 weeks ago may have just a weensy bit of influence on this small shift of emphasis, in the campaign against the carbon “X” scheme scam.

I met Senator Joyce for the first time on July 1, at the Martin Place No Carbon Tax rally. Despite the pressures of so many wishing to speak with him – as you can imagine – he was gracious enough to make time available to speak with me about several concerns.

The chief of those concerns relates to my view that regular readers will be familiar with.

That is, my firm view – now confirmed by the evidence of the final package – that this carbon “X” scam is and always has been a scam designed solely to benefit bankers, from Day 1.

And therefore, it has also been my view that there is great opportunity for the Opposition to take advantage of Julia’s recent to-ing and fro-ing over whether the scheme is really a “tax”, “like a tax”, or … “an emissions trading scheme”.

How?

By emphasising the simple, demonstrable fact that an ETS only benefits the banksters, and speculators.

And further, that emissions trading has been shown to have zero impact on reducing actual emissions of CO2 –

Why do I believe it is so important to emphasise the bankster connection?

The reason is this.

While calling the scheme a “tax” has been very effective to date, in appealing to those of a conservative mindset – who in my view are generally predisposed to an ideology of lower taxes – I do not believe it is the most effective strategy for appealing to those of a more so-called “progressive” mindset.

It is my experience that “progressives” are not necessarily predisposed against bigger taxes – provided they can be convinced that it is in “a good cause”.

That is exactly how The Final Solution to global warming – the Great Global Carbon Trading Scam – has been sold to those of a “progressive” bent.

That it is “a tax” … or “like a tax” … that is “the best way” to “save the planet”.

A Robin Hood scheme, that takes from the rich, and gives to the poor, saving the planet in the process.

And so-called “progressives” have lapped this lie up.

It is also my experience that, in Australia at least, pretty much everyone … hates banks.

And it is my observation that so-called “progressives” are often their most fervent opponents.

In my discussion with Senator Joyce, I put this argument forward, and whilst congratulating him on his own frequent mentions of “bankers making fees and commissions from pushing bits of paper around”, impressed on Senator Joyce my view that the Coalition should raise the emphasis on the role of banksters in the Government’s planned scheme.

I explained my view that the polls clearly show those of a “conservative” bent are now very firmly against this scheme, irrespective of what title is given.

And that I firmly believe a significant raising of emphasis on the galactic-scale profit-making opportunity that the Scheme scam represents for global banksters – who are driving the push for global “hot air” trading – may be the best way to now begin appealing to “progressives” and the “undecided”. Using a touchstone for nearly all Aussies, conservative or progressive.

Hatred of banks.

I also suggested my view to Senator Joyce, that the Opposition should begin to do so only after a suitable interlude from the day of our discussion, being the day after Julia’s first backflip on what this scheme really is, a “tax” or an “ETS” .

An interlude of a week or two.

And here we are.

Exactly 2 weeks later.

Pure coincidence, I am sure.

But I do trust readers will understand my choosing to enjoy a little moment of vanity indulgence, on seeing the above statements by Tony Abbott yesterday 😉

Please do spread the word, to all you know.

That our Green-Labor-Independent government’s scheme, is nothing more than a global bankster scam.

As I am confident that one former Goldman Sachs Australia chairman (and “confidential” beneficiary of their deep pockets), Malcolm Turnbull MP well knows.

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I Was Right – Our Banks Begin Preparing Carbon Derivatives Market

14 Jul

It did not take long. Just 3 days.

From Business Spectator (emphasis added):

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review.

Australian financial firms that have experience in European carbon markets, such as Macquarie Group Ltd, Westpac Banking Corp Ltd and ANZ Banking Group Ltd are particularly keen to establish their presence in the Australian market.

The initial three-year fixed carbon tax period from 2012 will serve as time to prepare for the release of ETS permits by 2015, when opportunities will really open up for banks to capitalise on the carbon market.

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

I was right.

On Carbon Sunday, I dissected the Government’s newly-announced “carbon pricing mechanism” (see “Our Bankers’ Casino Royale – ‘Carbon Permits’ Really Means ‘A Licence To Print'” ).

Here’s a couple of quotes from that article. The first is in reference to the “initial fixed price period” that the Government would have you believe is “like a tax”:

I was right.

The carbon permits will have no expiry date.

They are an artificial construct – “an electronic entry” – that is deemed by government decree to be a new “financial product”.

Moreover, note carefully the sentence I have bold underlined.

The “creation of equitable interests”, and “taking security over them”, simply means this.  The carbon permits can be used as the basis for bankers to create other, new financial “securities”.

Carbon derivatives, in other words.

Derivatives (or “securities”) are the toxic, wholly-artificial financial “products” that were at the heart of the GFC.  The same bankster-designed “widgets” that the world’s most famous investor, Warren Buffet, spoke of as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

You can stop reading this piece right now if you like.

Because from that Table 6 alone, you now have conclusive proof that this is nothing whatsoever to do with the climate.

It is all – and only – about global bankster profits. At the direct expense of the common people of planet earth.

Note well. The banks do not have to wait until the “flexible price period” commences after 3 years, to begin creating their “securities” (ie, derivatives), based on the notion of the underlying “value” of the “fixed price” carbon permits.

The Government’s scheme allows this from Day 1. Naturally. Because that is what the banksters – and their “leading economist” shills – are all salivating over. A government-decreed excuse, to create a whole new kind of “derivatives” market.  It is the whole point of the scheme.

In specific reference to the “flexible price period” to follow three years later, I wrote this:

Now, why have I bold underlined “borrowing“?

And why have I bold underlined “advance auctions of flexible price permits…”?

Because these are the key words from the “banking and borrowing” section. The words that tell you all you need to know.

That this SCAM is nothing whatsoever to do with the global climate.

And that it is 100% about creating a new, global, CO2 derivatives-trading market for the banksters.

The world’s biggest-ever financial cesspool.

Of toxic, intrinsically-worthless, humanity-raping financial “instruments” called derivatives.

Non-existent, digital “widgets”.

That can be borrowed from the future – ie, before these artificial carbon “widgets” are even issued – and leveraged by scum-of-the-earth banksters.

And then, traded by these parasites at multiples of hundreds and thousands of times more than the underlying, artificially-created “value” of the carbon permit.

Furthermore, the “advance auctions of flexible price permits in the fixed price period” proves beyond all shadow of doubt, that I was right.

That this “carbon pricing mechanism” is the bankers’ CPRS by another name. From Day 1.

Why does it prove it?

The advance auctions of flexible price permits “in the fixed price period” means this.

From Day 1, the government is effectively allowing the setting up of a futures trading market, for Australian CO2 permits.

Futures trading of nothing. Before the nothing is even created.

The banksters’ wet dream.

Australia – you have been monumentally conned.

The Green-Labor-Independent Alliance’s plan to “save the planet”, is a gigantic scam.

It is the bankers’ Casino Royale.

Where “carbon permits” really means, “A Licence to Print”.

Thank you, Australian Financial Review and Business Spectator.

For confirming that I was right.

Oh … just one more thing.

To help give you some idea – a picture in your mind – of how gigantic the new (government-rigged) “market” for the banksters’ carbon derivatives can become, take a look at the following chart, sourced from the RBA’s Statistics data.

It shows the size of our banks’ current holdings of Off-Balance Sheet derivatives bets, on the future of Interest Rates, and Foreign Exchange Rates:

Click to enlarge

Yes, that’s $3.98 Trillion in Foreign Exchange derivatives bets. And a whopping $11.68 Trillion in Interest Rate derivatives bets. Off-Balance Sheet. At March 2011.

Here’s another chart – also sourced from RBA data – showing our banks’ current On-Balance Sheet “Assets” (66% of which are actually loans) – the blue line – compared to their total Off-Balance Sheet “Business” (ie, derivatives) – the red line:

Click to enlarge

Yes, that’s $2.68 Trillion in “Assets” (mostly loans). Compared to … $16.8 Trillion in Off-Balance Sheet derivatives gambling. Mostly on Interest Rates, and Foreign Exchange rates.

Just try to imagine the size of the brand new carbon dioxide “hot air” derivatives market casino that our banksters’ will create, in the form of leveraged bets on the underlying so-called “value” of carbon permits.

It is Armageddon waiting to happen.

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Fresh Evidence Our Banks In ‘Race To The Bottom’ Means You Can Kiss Your Super Goodbye

9 Jun

From news.com.au, 7 June 2011:

Fresh evidence is emerging of a “race to the bottom” among banks and other lenders as demand for mortgages slides and competition boils over.

Lenders are increasingly cutting standards by enabling home buyers to make smaller deposits, new research indicates.

About three in every five mortgage products now enable home buyers to borrow up to 97 per cent of the value of their property, according to financial research group RateCity.

RateCity chief Damian Smith said the rise in loan-to-value ratios (LVR) indicated that lenders wanted to kick-start growth in the sluggish home loan market.

“We haven’t seen this level of money offered to mortgage borrowers since the start of 2009,” Mr Smith said.

He warned that change in lending criteria was putting borrowers at risk.        

“There is a concern for some borrowers who take on too much debt, because it makes them more susceptible to risk if rates increase or property values fall.”

It’s not just borrowers that are put at risk.

What this means is that the day is drawing nearer when the Government proclaims “No Super For You!!”

How’s that, you say?

Bear with me on this. All will become clear:

High loan-to-value ratios also place banks at greater risk, with the likelihood of a lender absorbing a loss in the foreclosure process increasing as the amount of equity decreases.

Similar borrowing practices were behind the collapse of the US housing sector when people with a higher chance of defaulting on on their payments were provided loans at higher-than-normal interest rates.

Indeed.

It places banks at greater risk.

On 18 May 2011, Fitch’s Ratings credit rating agency offered this ominous warning about Australia’s banks’ lending standards (from Business Week):

… Australian banks could have their credit ratings cut if they lower standards to boost mortgage sales as demand for home loans slumps.

“If we do start to see signs of erosion in those lending standards, there may be some negative pressure on ratings coming through,” Tim Roche, director of Fitch’s financial institutions group in Sydney, told a credit forum today.

Here’s how the domino effect works.

1. House prices fall – as they are right now.

2. Banks lower lending standards – as they are right now.

3. Arrears on mortgages rise – as they are right now.

4. Ratings agencies cut Big Four banks’ credit rating – as they have just done, and are threatening to do again.

5. Banks cost for wholesale funding rises due lower credit rating.

6. Banks pass on increased costs to you, as interest-rate increases.

7. Mortgage arrears rise further due to interest rate, cost-of-living pressure.

8. House prices fall further due “distressed” vendor sales.

9. Banks’ “asset” values, profits fall.

10. Residential Mortgage-Backed Securities (RMBS) fall in value and are downgraded – as they are right now.

11. Banks’ lose trillions on “derivatives” bets related to RMBS.

12. Banks’ credit ratings downgraded even further.

13. Rinse and Repeat, from 5.

14. Bank/s cannot borrow (a “credit squeeze”).

15. Short-sellers smell blood in the water; Banks’ share prices collapse.

16. Banks fail … just as in the USA, UK, and the EU.

17. Government pilfers your super to prop up our government-guaranteed, Too Big Too Fail banks.

Think it can’t happen here?

It can.

And it will.

Both parties are already planning for it.

The Government has effectively guaranteed it (How? By guaranteeing the banking system; a guarantee underwritten by you, the taxpayer).

And Senator Joyce has specifically forewarned of it.  Just as he (correctly) forewarned of the US debt default that is happening right now.

Labor has introduced legislation moving in that direction in the May budget.

And the Liberal Party has just announced a new policy – disguised as a “reform” to “help” business – that is aimed squarely at getting the ATO‘s hands on your super … before it even gets to your super fund.

Learn all about the wave of superannuation confiscations rolling across the Western world, and our own super theft to come, here.

UPDATE:

h/t reader and Guest Poster “JMD”, in Comments below.

Want to try and access your super early, and beat the government to it?

No can do.

Not unless you’re underwater on your mortgage. Then you can … to pay out the banksters:

“You can however access your super early, ‘to prevent your home being sold by the mortgage lender as a result of non payment on your home loan’. It would be interesting to find out when that rule was slipped in, allowing the banks to access your super but not you.”

Go to http://www.rest.com.au/Forms-Publications.aspx

You will see a tab to click on; Withdrawals from your account, then a pdf; “Fact Sheet: Accessing your super early.”

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By Hook Or By Crook – Moody’s Says Our Banks Are Too Big To Fail

20 May

Australia’s Big Four banks have all just received a credit rating downgrade by ratings agency Moody’s.

From the Sydney Morning Herald:

Moody’s Investors Service has downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1, citing their relatively high reliance on overseas funds rather than local deposits.

For a closer analysis of what this really means for Australia’s economic future, we turn to a man far more knowledgeable on this topic than I.

From the must-read MacroBusiness.com.au (emphasis added):

Moody’s analysis of the Australian banks’ vulnerability is pointed. In fact, it’s right on the money as it were, capturing both the past vulnerability and potential future problems, as well as solutions.

To put it bluntly, Moody’s is onto us.

…

For well over a decade, Australia’s banks have funded huge swathes of the current account deficit. As well, over the past two commodities booms, much of the export income has been leveraged up and blown on housing and fancy living. Moody’s is effectively calling the risks of this model to account. And they’re still not finished:

At Aa2, the major banks’ ratings continue to incorporate 2 notches of uplift from systemic support. Moody’s views bank supervisors and the government in Australia to be supportive by global comparison and the banks to have high systemic importance, as implicitly recognized by the government’s “Four Pillars” policy (which restricts M&A among the banks).

Moody’s also notes that creditor-unfriendly initiatives — such as bail-in legislation — are not on the policy agenda in Australia.

Heavens to Betsy.  It’s finally out in the open. The big four are too big to fail and Moody’s rates the Australian government’s implicit guarantee of the banks’ wholesale debt (as well as the explicit deposit guarantee) as worth two ratings notches. Moreover, by phrasing it this way, Moody’s has essentially put the Australian government on notice that if it dares back away from that guarantee then it can count on the result. The further implication is that the Budget had better remain shipshape to provide the guarantee.

Moody’s is rightly concerned about our banks’ heavy reliance on borrowing from off-shore, in order to lend into our housing bubble.

But as we have recently seen (“Tick Tick Tick – Aussie Banks’ $15 Trillion Time Bomb“), our banking system is vulnerable to a much greater danger than reliance on wholesale funding.

Derivatives.

The exotic financial instruments at the very heart of the GFC, that the world’s most famous investor, Warren Buffet, famously called “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

To give you an idea of the vast disconnect between our banks’ $2.66 Trillion in On-Balance Sheet “Assets” (66% of which are loans), and their $15 Trillion in Off-Balance Sheet exposure to OTC derivatives, take a look at the following chart.

It shows our banks’ combined total Assets – blue line – versus a red line of total Off-Balance Sheet “business” (click to enlarge):

$2.66 Trillion in "Assets" versus $15 Trillion in Off-Balance Sheet "Business"

Never mind the risk of wholesale funding liabilities.  What happens when our banks’ $15 Trillion worth of Off-Balance Sheet “financial weapons of mass destruction” blow up – just as they did in the USA?  That’s more than 10x the entire value of this country’s annual GDP!

Now you know the answer.

The takeout from the Moody’s downgrade is very simple.

Moody’s has effectively just warned the Australian government that it MUST continue to guarantee the liabilities of our entire banking system. Or else the Big Four banks’ credit ratings will be downgraded even further.

Meaning much higher interest rates.  And, the real risk of off-shore funding drying up completely.

Australian taxpayers are now firmly on the hook … to bail out the crooks.

Because – just like in America – they are now considered Too Big To Fail.

For a sneak preview of our future, here’s how Australia will look when the SHTF.

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Tick Tick Tick – Aussie Banks’ $15 Trillion Time Bomb

6 May

*This post follows up on my August 2010 post, “Aussie Banks’ $14.2Trillion Time Bomb”. Please read the article for detailed background to this update.

How safe are Australia’s banks?

Previously we saw that our “safe as houses” banks have a massive disconnect between their On-Balance Sheet Assets, and their Off-Balance Sheet “Business” (specifically, OTC derivatives).  Last time we checked, they held $2.62 Trillion in Assets, and a new record $14.2 Trillion in Off-Balance Sheet “Business”.

The disconnect has widened even further.

First, let’s take a look at a chart of their “Assets”.

In the chart below, the yellow line represents the total value of Personal Loans. The green line represents Commercial Loans.  The red line represents Residential Loans.  And the blue line represents the grand Total of Bank Assets (click to enlarge):

$1.77 Trillion of Total "Assets" = Loans

The total value of Bank Assets has barely moved – $2.66 Trillion. It has still to regain the peak of $2.67 Trillion in Dec 2008.

It’s worth noting that $1.77 Trillion (66%) of the banks’ $2.66 Trillion in “Assets”, is the value of Loans – personal, commercial, and residential.  That’s right.  Your debt to the bank is considered their “Asset”.  Slavery is still a thriving business in the 21st Century.  It’s how bank(ster)ing works.

What about their Off-Balance Sheet “Business”?

It has blown out by another $1.3 Trillion at its recent peak ($15.5 Trillion), and as at December 2010 sits at just under $15 Trillion.

To give an idea of the vast disconnect between our banks’ “Assets” (66% of which are loans), and their exposure to OTC derivatives, the following chart shows their total Assets – blue line from the above chart – versus a red line of total Off-Balance Sheet “business” (click to enlarge):

$2.66 Trillion in "Assets" versus $15 Trillion in Off-Balance Sheet "Business"

What are derivatives?

Derivatives are the exotic financial instruments at the very heart of the GFC.

Back in 2003, the world’s most famous investor, Warren Buffet, famously called derivatives “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

Take note of the sharp dip in the near-parabolic rise in the red line on the chart. This coincides precisely with the late 2008 / early 2009 impact of the GFC on our banking system.

Our banks reduced a little of their exposure to OTC derivatives at that time (down $1.4 Trillion from Sep ’08 to Jun ’09) but quickly resumed their old ways.

At least, until September last year.  Again we see a sharp dip forming through the December quarter of 2010.

A final thought to consider.

If our banks were really so safe, why did two of our Big 4 (Westpac and NAB) both quietly borrow billions of dollars directly from the US Federal Reserve during the GFC?  And never advised shareholders, the prudential regulatory authority (APRA), the RBA, or the public?

An even bigger question – why did the RBA borrow $53 billion from the Federal Reserve without informing anyone?

National Australia Bank Ltd, Westpac Banking Corp Ltd and the Reserve Bank of Australia (RBA) were all recipients of emergency funds from the US Federal Reserve during the global financial crisis, according to media reports.

Data released by the Fed shows the RBA borrowed $US53 billion in 10 separate transactions during the financial crisis, which compares to the European Central Bank’s 271 transactions, according to a report in The Australian Financial Review.

NAB borrowed $US4.5 billion, and a New York-based entity owned by Westpac borrowed $US1 billion, according to The Age.

All is clearly not as safe as we are told in our “safe-as-houses” banking system.

UPDATE:

Still have confidence in our banks – especially the two that had to borrow from the US Federal Reserve?

Westpac, Australia’s second-largest bank, suffered a catastrophic IT meltdown yesterday when its entire banking system collapsed after an air-conditioning failure.

The bank’s ATM and eftpos facilities were useless for about six hours and its internet banking website was offline for 10 hours.

Customers reacted with fury over the system collapse, which came days after Westpac reported a record $3.96 billion net profit, up 38 per cent for the first half of the year…

Many Westpac customers flocked to Twitter to vent their anger, but the bank’s outage pales in comparison to the National Australia Bank‘s recent IT problems.

In late November, software issues at NAB lasted for more than a week and brought other financial institutions to their knees. The incident forced chief executive Cameron Clyne to issue an unprecedented public apology in major newspapers.

Three weeks ago, workers could not access their pay when a 24-hour IT failure affected employers who used NAB for their payroll processing.

The Commonwealth Bank has also had its share of IT glitches, from its internet banking going offline to ATMs discharging incorrect amounts of cash.

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Aussie Banks In Market Crosshairs

11 May

The markets have begun lining up Australia’s banking system in the crosshairs.  How do we know?  Late last week, the spreads on credit default swaps (CDS) for Australia’s banks widened the most of all banks in the world.

By the close of trading on Friday, all 4 members of our “safe as houses” 4-pillar banking system, along with our own ‘Goldman Sachs’-style investment bank Macquarie, saw deteriorations in their CDS spreads by amounts that were the worst in the world.

What does that mean?  Simply, the cost of taking out “insurance” against the bank defaulting on its debts increased dramatically.

From CMA Market Data‘s “Sovereign Risk Monitor”:

Friday, 7 May 2010 — 23:30

Largest Widening Spreads (Greatest Credit Deterioration)
Entity Name 5 Yr Mid Change From Close
bps bps %
Westpac Banking Corporation (SUB) 165.09 +50.23 +43.74
Australia & New Zealand Banking Group Limited (SUB) 167.06 +50.23 +42.99
Commonwealth Bank of Australia (SUB) 165.10 +48.44 +41.52
National Australia Bank (SUB) 167.05 +48.14 +40.49
Macquarie Bank Limited 174.28 +49.45 +39.62

It seems the markets are a wake up to the ever-growing threat the Eurozone crisis poses to Australia’s financial system. Unfortunately, very few Australians realise (or will honestly admit) just how vulnerable our banking system is:

The chief executive of National Australia Bank, Cameron Clyne, referred last week to Australian banks’ dependence on wholesale funding markets as their Achilles heel…

On average, Australian banks are sourcing just under a third of their funding from overseas wholesale markets and still too much of their existing borrowings are short term.

Australian banks are among the more vulnerable plays in the world to another Lehman-style event because of their dependence on overseas wholesale markets, which have proven already they can freeze up for extended periods.

But overreliance on international wholesale capital funding is far from being the only risk to our banking system.  Australia’s banks also have a chronic overexposure to the domestic housing (mortgage) market. A fall in property values here – just as in the rest of the Western world – would be catastrophic for our banking system.

From Contrarian Investor’s Journal:

We must confess, we are getting more and more nervous about the potential for a Black Swan hitting the Australian economy. Particularly, we are looking at a vulnerability in the banking system. Here are some facts about Australian banks:

  1. As at December 2009, around 75% of the Australian mortgage market is held by the Big 4 banks. 50% are held by Commonwealth and Westpac while 25% are held by ANZ and NAB. (source: CoreData’s Australian Mortgage Report Q1 2010)
  2. 60% of Commonwealth’s lending books are residential mortgages.
  3. 50% of Westpac’s lending books are residential mortgages.

Now, here’s an interesting news report from almost two years ago:

“The Reserve Bank of Australia has a dark worry about our banks: they get 90 per cent of their cash from each other. If one bank gets into trouble, the Australian financial system could be snap-frozen overnight.”

A final thought.

Our banks have over $13 Trillion in off-balance sheet business.

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

It is clear that our Aussie banks are not so safe after all.

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Aussie Banks To Cut Lending, High Risk

11 Apr

From the Sydney Morning Herald:

Banks could be forced to curb sales of mortgages after a feeding frenzy on housing over the past 18 months has seen their exposure to the property market hit record levels.

Last month, BHP Billiton’s outgoing chairman and former head of the National Australia Bank, Don Argus, likened the big banks to ”giant building societies”, accusing them of neglecting business lending to chase the mortgage market.

Of the big banks, the Commonwealth has the most concentrated exposure to the property market – 65 per cent of its lending book is tied up in mortgages. For Westpac and St George combined it is 62 per cent.

ANZ and NAB, which traditionally have a bigger exposure to business lending, have pumped up their mortgage exposure – it accounts for more than 50 per cent of their Australian loans books.

Could Australia experience a property crash, just like those in the USA, UK, Ireland, Spain … in fact, like most of the Western world?

Professor Steve Keen, the only Australian economist to forecast the Global Financial Crisis, believes our property bubble must burst too. It is just a matter of time.

Thanks to the Rudd Government’s doubling of the First Home Owners Boost, tens of thousands of (mostly) younger Australians were suckered into huge mortgages when interest rates were at their lowest.  Now, with household debt levels at an all-time high, the experience of so many other nations says that our bubble will burst too.

“If you do not manage debt, debt manages you”.

Barnaby is right.

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‘Concentrated Risk’ Threat to Aussie Banks

29 Mar

From Contrarian Investor’s Journal:

We must confess, we are getting more and more nervous about the potential for a Black Swan hitting the Australian economy. Particularly, we are looking at a vulnerability in the banking system. Here are some facts about Australian banks:

  1. As at December 2009, around 75% of the Australian mortgage market is held by the Big 4 banks. 50% are held by Commonwealth and Westpac while 25% are held by ANZ and NAB. (source: CoreData’s Australian Mortgage Report Q1 2010)
  2. 60% of Commonwealth’s lending books are residential mortgages.
  3. 50% of Westpac’s lending books are residential mortgages.

Now, here’s an interesting news report from almost two years ago:

“The Reserve Bank of Australia has a dark worry about our banks: they get 90 per cent of their cash from each other. If one bank gets into trouble, the Australian financial system could be snap-frozen overnight.”

That is only one concern for Australia’s banking system. You know, the one that we are constantly reassured is “world-leading”, “safe and secure”, “the best in the world”.  The banking system that needed a Government (ie, taxpayer)  Guarantee on customer deposits since October 2008, to stop the “run on the banks” that threatened to collapse it.  The banking system that still has wholesale funds frozen to withdrawals, leaving hundreds of thousands of retirees destitute and forced to go back on the government (taxpayer) pension.

There’s also this concern. Australia’s banks have $13 Trillion in off-balance sheet business.  Yes, that’s Trillion with a ‘T’. But, they only have $2.59 Trillion in on-balance sheet assets.

From Money Morning:

We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained. Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

Our “world-leading” Big Four banking system is a total disaster just waiting to happen. And it’s all thanks to greed… and Debt.

Barnaby is right.

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