Tag Archives: Westpac

Here Comes The Banksters’ Glee Club

2 Jun

Surprise, surprise.

A high profile “group of senior economists” – read “corporate shills for the bankstering industry” – have come out in support of their fellow #JAFA Ross Garnaut’s proposal for an “independent” Carbon Bank:

A group of senior economists has written an open letter advocating a price on carbon as an essential reform for the national economy, with an emissions trading scheme the preferred option.

The group of high-profile economists includes Grattan Institute director Saul Eslake, St George chief economist Besa Deda, Citigroup Global Markets’ Paul Brennan and Westpac chief economist Bill Evans.

Saul Eslake is the former chief economist for ANZ Bank.

Macquarie Bank‘s chief economist Richard Gibbs is also mentioned in the above article.

Given that banksters like these stand to make a killing on any carbon “tax” / emissions trading scheme, it’s hardly a surprise at all to see their glee club out on stage singing for their supper.

We can’t allow this to happen.

Handing the money from a “carbon tax” over to an “independent” Carbon Bank guarantees that this country will be bankrupted by the same greedy scum who brought the GFC on the world.

Learn why here – “Our ‘Squeeze Pop’ Carbon Bank” – and here – “Unelected, Unaccountable JAFA Garnaut Calls For Unelected, Unaccountable, Unholy Trinity Of Carbon Gods”.

UPDATE:

Saul Eslake takes issue, in Comments below.

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.

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.

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.

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.

‘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.

Another Financial Crisis Coming

4 Mar

From ABC News (America):

Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

The report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”

According to data from the Reserve Bank of Australia, the Australian banking system has $13 Trillion in Off Balance Sheet business, compared with only $2.59 Trillion in On Balance Sheet business.

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