Shares in Australian banks have tumbled by up to 5% again today, bringing the unprecedented three days of losses to more than $30 billion.
Whilst ANZ and NAB have largely taken their medicine and dropped 20%, Westpac and ComBank are catching up in the expectation that they will be forced to follow ANZ’s lead and adopt more conservative bad debt provisions from their core Australasian businesses.
The broker commentary was much more restrained on ANZ today because it largely came a cropper playing in its home patch, whereas NAB’s bombshell came from messing around in the US mortgage market.
Whilst many economists talk about Australia’s two speed economy, our Big Four banks have a three speed Australasian market to cope with when you include the faltering New Zealand economy.
Not many Australian companies take on the world and win but our banking cartel has been very good at spreading their dominance across the ditch, something they probably now regret as the Kiwi economy nose dives without a resources boom to save it from recession. ANZ is actually the biggest privately owned business in New Zealand with gross profit topping $1 billion last year on revenue of almost $2.5 billion.
With Kiwi bad debts soaring and a seemingly endless stream of finance companies collapsing, ANZ must surely be regretting paying Lloyds TSB $5 billion for the National Bank of New Zealand in October 2003.
That said, ANZ shares have now more than halved in nine months even though it is still budgeting to make a cash profit of $3 billion this year. I reckon it’s oversold and spent $3000 buying ANZ shares at $15.50 this morning, equivalent to a dividend yield of more than 12%.
Markets often tend to overshoot and Treasurer Wayne Swan arguably added to the panic yesterday by giving a reassuring press conference as if he was trying to stop a system wide bank run. Much of what Swan said made little sense. Try these lines for size:
I think what this announcement from the ANZ shows is that we are not immune from developments in global financial markets. But I think we shouldn’t lose sight of the fact that we do have a strong, well-regulated banking sector which is capable of withstanding the fallout from these international developments.
Now, I think it’s a very sensible thing for the ANZ this morning to make provision for these potential losses. These potential losses come from decisions, investment decisions, poor investment decisions taken over a period of years, as well as the fallout from the global financial market events.
The vast majority of ANZ’s extra bad debts were from its core Australasian banking business and had nothing to do with the global credit crisis or poor investments, such as NAB’s CDO exposure.
Wayne Swan should be addressing questions such as how Australia manages its $1 trillion household debt and $620 billion foreign debt and whether the Future Fund should continue to bail out the banking cartel with tens of billions of taxpayer funded deposits.
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