Banks outperform the market
Welcome back!
The recent performance of the Australian banks on the ASX has been impressive. All the banks have risen strongly off recent lows and while gains have moderated future share price gains look certain.
During the recent global downturn the gains in market share by the Australian Big 4 banks has been staggering. As the smaller lenders and part players in the market have either disappeared or been acquired by the big four the future gains of the big banks has been even further cemented.
The real issue in the Australian banking sector now is the lack of competition in the market. As the big banks have approximately 90% of the market share alternate market lenders lack the mass and capital to compete. This will lead to future out-performance of the banks and increasing lending margins that will impact home buyers much more than investors.
RBA strike with interest rate rise to 3.25%
The Reserve Bank Governor Glenn Stevens hiked rates today by 0.25% to 3.25% on the back of strengthening signs of economic recovery and rising concerns at the RBA of potential inflation risks from low interest rates.
The rate increase, the first since April 2009 when rates were decreased to 3.00%, signals a move by the RBA to limit the possibility of rampant inflation on the back of historically low interest rates. The move is not likely to be the end of the cuts with talk already of another increase on Melbourne Cup day in November.
All big banks are likely to pass on the rate increase promptly.
What do you think interest rates will go up to by the end of 2010? Share your thoughts in our comments section.
ANZ close to securing RBS Asian Assets
Reports indicate that ANZ may be close to securing the key Asian assets of the Royal Bank of Scotland (RBS). ANZ have kept no secret of the desire to secure the assets but are keeping their lips tight at the moment and not revealing any information ahead of a possible announcement next week.
Should ANZ secure the assets it will be a massive boost for the plans of ANZ Bank to develop a super-regional bank that will better help it differentiate itself from the other Australian banks.
NAB seek $2.75 billion share placement
The NAB in a quarterly update announced a $2.75 billion capital raising, $2 billion from institutional investors and $750 million through a retail share offer.
The share placement will increase tier one capital from 8.2% to 8.8% in what was a mild surprise to the market and indicated that we have not sen the end of the bank capital raisings.
The announcement makes the recent ANZ announcement even better timed as they managed to jump in first to secure capital with others likely to come back to the table for further funds.
The bank will also raise up to $750 million through an offer of new shares to retail investors.
NAB used the market update to also indicate tat they have taken a charge for bad and doubtful debts which rose to $1.06 billion for the three months to 30 June 2009. The announcement indicated that the bank was being hit hard by the market crunch and general rise in bad debts.
The equity raising will go some way to secure further liquidity for the bank at a time when the Australian economy has not hit the peak of the downturn.
Which Australian bank has a plan for growth?
The Australian banking sector like the global banking sector has become risk averse and in a time where banks around the world are falling over the Australian banking sector still looks strong.
But if you were thinking a few years out and wanted to invest now, where would you put your money? The Australian banks have mostly followed the same path od de-risking and focusing on Australia so if you were investing you would want to consider what growth options they are aiming to access.
It would appear growth options are limited in Australia but and that NAB, Westpac and Commonwealth Bank all seem to be aiming at Australia for the future both short and long term. ANZ is the only bank that is aiming for a different path, they see growth in Asia as the major driver in the future.
ANZ have a defined strategy under Mike Smith, much like when McFarlane was in charge in the early days at ANZ. ANZ soon took the mantle of the best managed bank under McFarlane and I expect in a few years time people will be singing the praises of Smith.
Asia is a developing region and for business it is an area that needs to be invested in to benefit from growth as opposed to investing in old growth markets of Europe and Australia.
So which do you think is the best Australian bank if you are looking at a three to five year perspective?
Westpac leads in Australian banking sector
Westpac showed why it’s the most highly regarded Australian bank with a solid $2.18 billion profit amid a rise in debt provisioning to $1.6 billion on an increase in bad loans.
The interim result to 31 March indicated the rising bad debt impact on Westpac as has recent results for all the major banks. Gail Kelly the CEO of Westpac indicated that the economy was likely to worsen but Westpac was well prepared for the tougher conditions ahead.
Westpac anounced a cut to the first half dividend from 70c to 56c to preserve capital in what is stil very tough banking conditions. Of particular concern to Westpac was the increase in provisions of $156 million in the margin lending operations. In a positive, Kelly indicated the margin loan book had been reduced from $6.6 billion to $4 billion indicating this was managed well.
After seeing all the results it would appear Westpac delivered the best result overall and appear to be well supported by the strong focus on Australia but while they are managing risk what are their growth plans?
Australian Bank Watch Changes
I have made some minor changes to the Australian Bank Watch site. You will note on the left hand sidebar I have expanded the selection of variable home loan rates to include a number of leading Australian banks outside of the top 4.
I have also added the cash rates for the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan and Reserve Bank of New Zealand. These complement the existing Reserve Bank of Australia cash rate that is also displayed. This will help visitors more quickly make a comparison between global central bank interest rates.
I have importantly added a date for when the interest rates were last revised. This should only be used as a guide and the interest rates should always be checked on the bank website which I have links attached for ease of navigation.
It is difficult to keep up to date with all the interest rate changes and they are quite liquid at the moment so I thought it wise to revisit the date I last updated. I will revise these on average once a month but also will update upon any Reserve Bank rate decision.
I have also expanded the links to a number of additional banks that were not previously listed and links to the major central banks.
I hope you find the changes of use and please direct any feedback or things you thing Australian Bank Watch should include to wes@ausbankwatch.com
Happy New Year!
2008 Bank Consolidation 2009 Non-Bank Oblivion
2008 was an amazing year in hindsight. We saw massive consolidation across the global economy particularly in the once dominant banking sector and perhaps we have or are experiencing the worst financial crisis since the great depression.
Only time will tell on that last one but for Australian banks it was clearly a year of consolidation and a period that has once again tipped the weight in favour of the big four banks Commonwealth Bank, ANZ Bank, National Australia Bank and Westpac.
In fact Westpac was the big winner of the year, now Australia’s highest capitalised bank after their successful takeover of former No 5 St George Bank.
Commonwealth Bank also picked up a few through the year with the latest deal the Wizard Home Loans purchase, they also bought 33% of Aussie Home Loans and swallowed Bankwest.
ANZ Bank consolidated it’s position with new CEO Mike Smith re-focusing the bank on tigher fiscal discipline after early financial setbacks through poor lending practices. ANZ also pressed on with it’s focus on Asia as the future development pathway of the bank.
The National Australia Bank did not sit on it’s hands as it consolidated it’s reputation and focused once again on core business in the light of the continuing deterioration in credit markets.
So what’s ahead for 2009, clearly with the crippled financial markets for smaller non-bank lenders further consolidation with occur. It is also fair to say that the regional banks Suncorp, Bendigo Bank and Bank of Queensland are likely to merge or will be swallowed by the big banks.
2009 will also likely see the death of the non-bank lender. These have been virtually damaged beyond repair in 2008 but will disappear or be bought for a pittance.
One last statistic to leave you with, in 2007 the big four banks had 45% of the mortgage market, at the end of November 2008 it was almost 90%. Don’t expect bank margins to reduce anytime soon.
Commonwealth Bank snatch Wizard from NAB
The Commonwealth Bank have masterfully pulled off an amazing last minute deal to purchase Wizard from under the nose of NAB.
The National Australia Bank had all but sealed the deal when the Commonwealth Bank becked Aussie Home Loans sealed the deal. The Commonwealth will pay $26 for Wizard, a far cry from the near $500 million paid by exiting owner GE Money only 4 years ago.
The deal secures Commonwealth Bank the $2 billion worth of prime residential mortgage’s and offers the potential for another $2 billion worth should they exercise the option.
Aussie Home Loans will buy Wizard’s brand and existing retail distribution network.
GE Money have announced plans to exit the Australian and New Zealand lending market to focus on their core business.
Big Australian banks create $2 billion car fund
The big Australian banks Commonwealth Bank, ANZ Bank, Westpac & the National Australia Bank will setup a special fund to provide financial support to the local car industry.
The domestic car financing market has been hit hard recently by the withdrawal of major car financiers including GE Money which has forced a number of businesses to consider bankruptcy.
The announcement by the treasurer Wayne Swan today revealed the $2 billion trust will provide liquidity to car dealers through securing eligible loans. The fund will commence on 1 January 2009 and will be secured by the government for 12 months.