daily reckoning: oz banks in bad shape, page-5

Here is another perspective on Aussie banks.
I subscribe to The Daily Reckoning and am starting to see quite a few cracks in what they say.


http://www.businessspectator.com.au/bs.nsf/Article/Banking-on-Obama-$pd20090121-NGRDJ?OpenDocument&src=kgb

Robert Gottliebsen
Banking on Obama
TOP News
PM warns economic growth to slow, unemployment to rise as BHP, Rio, David Jones, CSR cut jobs 2:31 PM
BHP Billiton to axe 6,000 jobs, shut WA nickel mine nine months after opening 2:32 PM
Rio Tinto cuts 1,100 jobs, aluminium output by 6% 2:09 PM
David Jones cuts profit, sales guidance, axes 150 jobs 2:03 PM
Myer expects 3.8% drop in H109 sales, earnings to rise 1-6% 3:23 PM

The Spectators
Bartholomeusz: Facing facts at BHP
Gottliebsen: Goodbye to the high life
Kohler: A crisis immune to rhetoric
Gottliebsen: Banking on Obama
Computing carbon emissions


As President Obama addressed the US and the world, global the markets were reeling from the next round of bank losses – this time led by yesterday's announcement of a $61 billion loss at Royal Bank of Scotland. That contagion will spread to the US because the losses that the IMF forecasts have not yet been confessed to by global banks and they need to be put on the table.

I got the distinct impression from Obama’s inspiring speech that the US banking system will be forced to stop playing silly derivative-based games and get on with traditional banking and take deposits and lend to people. That message will go to bankers all around the world. At the moment, US lending can’t happen because of solvency requirements and because regulators are causing American banks to use government money to survive. They have no scope to lend, thus creating a vicious circle. Obama will change that.

There will not be much left for US and UK bank shareholders, so banks are becoming much less important in the stock market indices of the US and the UK.

In Australia our banks are being trashed as part of the world movement against bank stock. However, our situation is entirely different. Although our banks are going to have a big rise in bad debts during 2009 and 2010 we have avoided the massive wealth destruction so endemic in the industry. We must be ready for the possibility of larger write-downs from the NAB in the UK because of the deterioration the entire British economy albeit that the NAB has a fascinating opportunity there (NAB in no-man's-land, January 19). Leaving the questions of higher bad debts aside, the actual base profitability of our banking system has rarely looked better.

The banks’ costs of funds are plummeting and although this is being passed on to home buyers it is not being passed on to business borrowers who must now pay a risk premium. This is a major change in the banking system and reflects the fact that the most of the overseas-based bank rivals to the local banks have left the stage. Businesses need the money and are prepared to pay. The four big banks see this as their chance to lift base profitability to cope with higher bad debts and lower margin home loans. And they are greatly helped by the fact that the government guarantee is enabling them to access funds from abroad.

I know of no other major developed country where the banking system is in this position. However, global investors are operating on a world instruction to “sell banks”, and our superannuation money pool is becoming more and more risk averse.

Our banking system is Australia’s greatest asset. It’s the only reason why we will avoid the worst of the global recession. In time the market will understand this.