MartinLuther

Hockey is the biggest joke going but the dyed in blues love him.

littda01

OK, a bailout is maybe stretching it, they didn't have to buy up toxic assets in the way the US and UK govts did. However, without a funding guarantee the banks stood a very good chance of going bust. See here

"This is a matter of historical record, available for all to see in The Great Crash of 2008, this blogger's book with Ross Garnaut. Here is the money quote:

In the early days of October 2008, money poured into the big four Australian banks from other financial institutions. But life was becoming increasingly anxious for them as well. One by one they advised the government that they were having difficulty rolling over their foreign debts. Several sought and received meetings with Prime Minister Rudd. The banks told him that, if the government did not guarantee their foreign debts, they would not be able to roll over the debt as it became due. Some was due immediately, so they would have to begin withdrawing credit from Australian borrowers. They would be insolvent sooner rather than later."

http://housesandholes.blogspot.com/2010/11/big-lie.html

A bank CEO also recently referred to the implicit guarantee that Aus banks have a government guarantee in place in the event of major catastrophe. In other words, they are Too Big To Fail, and if there were problems you can be sure the govt would bail them out.

MartinLuther

It was more of a back up than a bail out.


Interestingly the account guarantees were brought in to calm customers rather than help banks. However some of the banks profits have stemmed from this protection. It was interesting at the time as the UK was only guaranteeing something like £30k or £50k but the Aussies came in with a cool $1m. With that amount they certainly weren't expecting one of the big banks to go tits up. Obviously there were the unintended consequences which apparently the government should have foreseen (in hindsight opinion).

Whichever way you cut it, the Aussie banks were in better condition than most. They may have taken advantage of the situation but in some respects it was foisted upon them.

littda01

Not only to calm customers (though there were reports of runs on regional banks apparently). The big 4 couldnt roll over their funding in the global wholesale finance markets - remember 30% of their funding comes from overseas (and at this point, banks wouldnt lend to each other). If that had happened, they could have gone insolvent.

This is predicted to become an increasing problem for them as they will have to pay more to access new credit (and hence charge more for mortgages). See here for example:

http://www.abc.net.au/news/stories/2...13/3037646.htm

But yes I agree they are in better shape than most, but not as good as they hype would have us believe.

MartinLuther

I think the government guaranteeing the loans (i.e. lending their credit rating to the banks) was the thing that backed up the international loans rather than the account guarantee. However these things are entwined in a myriad of ways.

I agree that there is a problem with more expensive international credit but I think this would have happened regardless of how much the Aussie banks were backed up by the government.

I've not really picked up the hype but I would guess that the good condition was more a feature of policy than good management.

I'm not sure how true this is but I'm sure I heard a passing comment during the GFC that Gordon Brown had reduced the Capital Adequacy Ratio (or whatever it's called nowadays) down to zero.

ABCDiamond

Agreed, the banks were even hit badly when their profits dropped to only about $2 billion (in one of the big 4 banks case), and that was, as you say, and as the banks agreed, an increasing problem for them.

swans

As far as i am aware no money was given to OZ banks.

The govt made a profit from the guarantee,around $300 miliion unless my memory fails,it was a form of insurance,and of course a policy has to be paid for.this caused the $1million limit,after that the bank took it that you could pay for your own insurance and charged accordingly.

Geordie downunder

swans

Utter nonsense,a bank works on net interest margin,this equates to gross profit.for CBA this is around 2.03%, I E the difference between interest paid to the bank,and the interest the bank pays out.

iI would suggest you read the annual report,the audited accounts of the company

Funding pressures are increasing and wiil get worse,expect more rises in interest rates.

Purely from memory as I am still working through the annual report but CBA have gross assets of around $650 billion.As I have explained many times net profit is around 1%,thus $6 billion profit,easy isn't it.

Now on a loan book of $500 billion CBA collected $32 billion in interest,they paid out $20.5 billion,you calculate the net interest margin.Simple equation 32/500 x 100 =X%. 20.5/500 =y%. Take Y from x and there you go,net interest margin.

Profit will be under note 2 around page 113 or 114 in the annual report which can be read online,the heading will be interest income and interest expense .Where they have lent the money will be note 13,find where it is in the contents.

As i have said you can get away with the maths ability of a 10 yr old to analyse around 70% of a company,most people dont have that ability,always refuse to see reality,and always repeat what the experts and the crowd repeat.

Geordie downunder

IvanM

$16billion dollars of RMBS. These are some of the instruments that cause the GFC.

IvanM

I suggest people looking at mortgage looks away from the big 4. Credit Unions, ING Direct and others offer better deals. Check out the exit fees up front.

swans

RMBS is residential mortgage backed securities for those that don't know.If you are talking about the govt supplying this that that money is going to smaller lenders to provide competition to the big 4.

the big 4 would have around $1.1 trillion in motgage loans,they are large enough to securitise their own loans,they securitise around 2-3% of loan book.

To do the simple maths at 3 houses for $1million then obviously $16 billion is 48000 houses (3X16000),not a lot is it.$16 billion would probably fund the requirements of the big 4 for 1 or 2 days.

To look at it a different way $16 billion would be 2.5 average days turnover on the ASX.Numbers need to be put into context.

G d/u

IvanM

Big 4 Did not need the RMBS as they were able to issue multiples of that as Bonds backed by us the taxpayer. As you say the aim is to keep the non bank mortgage sector alive in a period when a number went bust.

16 Billion is significant in relation to the size of the annual RMBS market.

Amazulu

Wow, how patronising are you. Get over yourself.

For me, any outfit making $6b in profit ain't struggling - despite what they say about 'funding pressures'.

sonlymewalter

have to agree on that one mate

the banks cause all the worldwide financial crisis, at the same time claim poverty .....and make record profits

Churches and banks are some of the richest institutions

both greedy vermin barstewards

Centurion

Actually I have to disagree slightly. They are damned if they do and damned if they don't. If they don't make a profit then you won't feel secure leaving your money with them. If they do, then they are bastards.

We cheer them for being successful when the rest of the worlds banks started to fall and now a single bank decides to increase its mortgage rate to match the others they are burnt at the stake.

People going into branches to abuse staff saying things like "well done now I will loose my house ?". Frankly, anyone who has taken on a mortgage thinking that the rate was going to sit at bugger all forever deserves a stupidity prize before they take the house away.

I personally have no issue with what they have done. As a consumer of a product, and that is all they offer, I have a choice.