rams is sliding, page-13

The main reason LIBOR hasn't fallen following central banks pumping liquidity is that banks have been ANTICIPATING the September and October resets. They are sitting on enormous piles of cash and are unwilling to loan except for 1 and 2 day periods so they have the cash to take paper onto their balance sheet as required.
In oz, all the big banks (st george excluded) have already made provisions to bring SPV paper back on balance sheets and have the capacity to do so many more times over.


It basically boils down to a question of confidence and trust between banks - banks are currently unconfortable lending on an unsecured basis inter-bank. Once they have a more thorough degree of confidence about the distribution of losses, and a standardisation of how those losses are valued then lending will return and LIBOR will trend back to normal rates.

Without Central Bank intervention this could have ended taking a couple of months but you can rest assured that Central Banks are getting heavily involved. The RBA in oz has started the ball rolling; I expect the Fed will cut rates by at least 50 bp during its next two meetings; not to mention talk on wall street that consensus is being reached on interbank disclosure protocols.



I don't know what words' experience in the credit markets is but anyone who has seen liquidity crisis's in the past will recognise this cycle. The commercial paper market has to recover simply because it is so central for all large corporations who ever borrow to invest. It is not just about an alternative funding mechanism for marginal american housing; if the CP market didn't recovered by christmas then there would be a severe global recession. No one who matters is going to allow that to happen due to temporary disclosure issues around some poor loans.


Incidently, the current 1 month BBR is 40 bp above the cash rate. Historically it is around 12bp, so institutions like rams would be taking a 28bp hit on their NIM. If this was to continue for another month then the big banks would put up their mortgage rates - McFarlane at ANZ has already said as much. Now 28bp off an expected NIM for FY08 of 117bp is hurty but not terminal. Especially as higher mortgage rates can further narrow rams margin - without too much customer loss as the big banks have indicated they will do likewise.


Anyway I have decided to take advantage of all the doom and gloom in the SP and will be buying over the next few days.