daily reckoning: oz banks in bad shape, page-4

PP great comeback, not much to add to that succinct rebuttal. Perhaps that the great majority of Oz debt is variable and linked to BBSW or similar so debt servicing costs have dropped immediately and substantially. Together with our tough personal bankruptcy laws Aussies have to be pushed over the edge they never walk away from a mortgage like our US cousins.

Of course there will be bad debts. Of course there is fear and loathing. Yes of course the share price has been considerably trashed in anticipation although it could always go lower. Further capital raisings to strengthen bad debt depleted balance sheets are the real driver of share price falls. There is certainly no guarentee that Oz realestate will crash to the extreme levels seen o'seas with the comensurate bank balance sheet damage.

What is the underlying business worth?? A 4 bank monopoly that gouges fees and is mandated to run the simple business of borrowing low and lending high, now with no competition. Unless you believe people will paydown and forever avoid debt as "the work of the devil" the banks as a going concern (ex-present run up in bad debts) are the true cash generating wonders of our future. A lot of cash during a period of government fed liquidity and zero rate interest policy.

Unless our banks accumulate massive bad debts and blow up their balance sheets they will be the first business to come out of the recession IMO. When the bad debt shoes stop dropping the super funds will pile in at once like so many fat ladies through a small door.

Will Aussies pay down debt sufficently quickly to keep up with falling realestate prices or will realestate crash? That is probably the crucial question and the answer is certainly not a given.

cheers