Whiff of Panic among Australia’s Biggest Banks?

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“Australia’s WTF Moment”

Australian bank regulators that had for years practically encouraged the big four Australian banks to do whatever it takes to further inflate the housing bubble suddenly fretted publicly in April about the banks’ exposure not only to housing but also to China. And now something strange has happened that set off all kinds of warning sirens.

On August 2, the Reserve Bank of Australia (RBA) lowered its target “cash rate” by 25 basis points to 1.50%. And what did the banks do? Something so strange it smelled of panic.

Everything is nearly hunky-dory around the globe and in Australia, the RBA said to rationalize the rate cut, but it mentioned some squiggles in Australia’s housing market. And since about two-thirds of the assets of the big four banks are loans to the property sector, particularly mortgages, the RBA is getting nervous. It mentioned the oncoming tsunami of supply of housing units, tightening lending standards, and the pull-back of maxed-out potential homebuyers. It seems the RBA fears that something is going to prick the Australian housing bubble and take down the banks.

The big four banks – Commonwealth Bank of Australia (CBA), Australia & New Zealand Banking Group (ANZ), Westpac Banking Corp (WBC), and National Australia Bank (NAB) – are a special breed. Their total assets amount to 220% of Australia’s GDP!

Charles Littrell, executive general manager of supervision and support at APRA, the bank regulator, pointed out in April so eloquently that they’re not only “too big to fail” in terms of Australia’s economy; they’re “almost too big to get sick.”

And here is what happened next, after the RBA’s rate cut: the same day, the banks announced that they would, as expected, cut their mortgage rates and some other loan rates, but would also raise their term deposit rates for savers – and by a whole whopping lot.

Why would banks raise their deposit rates as the central bank cuts its rates? In other words, why would banks raise their cost of funds (deposit rates) while lowering their revenues (lending rates), thus crushing their spreads – and thus their profit margins? Among the big four banks, the movements were nearly panicky:

  • CBA will raise its one-year term deposit rate by 0.55 percentage points to 3% and its two-year and three-year deposit rates by 0.50 percentage points to 3.1% and 3.2% respectively, effective August 19.
  • NAB will raise its eight-month term deposit rate by 0.85 percentage points to 2.9%!
  • ANZ will raise its one-year advanced notice term deposit rate by 0.60 percentage points to 3% and its two-year advanced notice term deposit rate by 0.75 percentage points to 3.2%.
  • Westpac will raise its one-year term deposit rates by 0.55 percentage points to 3%, its two-year deposit rate by 0.45 percentage points to 3.1%, and three-year deposit rate by 0.55 percentage points to 3.2%.

These are a mega increases of deposit rates!

This conundrum of banks jacking up their deposit rates while the central bank cut its rates is what Lindsay David of LF Economics, a WOLF STREET contributor, and long a thorn in the side of these bubble banks and their regulators, called so poignantly, “Australia’s WTF moment.”

Regulators – after years of ignoring or encouraging the ballooning housing bubble and banks’ equally ballooning balance sheets so singularly exposed to mortgages – have become nervous. APRA has imposed higher capital requirements on the banks and some other rules to tamp down on the worst excesses. And it has become more vocal.

APRA’s Littrell called the housing market “toppy” in April, according to the Sydney Morning Herald. He warned about the banks’ exposure to iffy growth in China, the largest destination of Australian commodities exports, on which the Australian economy has become dependent, and whose prices have plunged – a theme the RBA picked up in its rate-cut decision.

The concentration of lending by the big four banks to the property sector was a “perpetual concern,” Littrell said. “It is a significant issue of concern to us that close to two-thirds of [the big four banks’] balance sheets are exposed to property…mainly housing loans.”

“It is fair to say in the past year we have worried about it a bit more because of the point we are at in the cycle,” he said.

APRA also warned at the time about the banks’ dependence on wholesale funding in the global financial markets, particularly short-term funding, which can dissipate into ambient air when other banks get spooked, leaving a bank suddenly high and dry.

That’s the fodder, as we’ve come to learn in 2008, for a financial crisis:

What did Washington Mutual in the US do to attract stable funding as it was cut off from the wholesale market in 2008 shortly before it collapsed? It offered 5% 5-year CDs, even as the Fed was slashing rates to zero.

That these banks jacked up their deposit rates, even as the RBA cut its rates, is a sign that they might be encountering trouble with wholesale funding. Their exposure to the Australian housing bubble and to a slowdown in China has been well known for a while, and we’ve written about it for over a year. Banks around the globe are now possibly getting nervous, or even a little spooked, and might be reluctant to lend to Australian banks, which would make wholesale funding harder to find, and more expensive.

And so the Australian banks want to entice depositors to lend them money. These term deposits would provide stable funding that cannot be withdrawn easily. But they come at a much greater cost. And that banks would be desperate enough to do that is a sign of possibly serious funding issues. If push comes to shove, efforts to bail them out will be made. But it remains uncertain how to bail out four banks whose assets are 220% of the country’s GDP.

And the short sellers have moved in. But is shorting these banks the best way to short Australian real estate, or is it a “widow maker trade?” Read… Hedge Funds Are Betting Record Amounts on Meltdown of Australian Banks and Housing Bubble

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  72 comments for “Whiff of Panic among Australia’s Biggest Banks?

  1. rw
    August 4, 2016 at 9:20 pm

    Thing is , the banks are under political pressure

    They raise TD’s to show the are doing something for savers (only on new money btw, not existing deposits)

    Within a few weeks they will drop these rates quietly back to where they were

    • MC
      August 5, 2016 at 2:07 am

      I am not exactly sure… savers have not exactly been a top priority for quite a few years now.
      From Paul Krugman blaming Chinese factory workers for saving money under their mattresses to our local European “economists” blaming us savers for our “hoarding tendencies damaging the economy”, the political climate has not exactly been kind and favorable, as proven by the financial repression making finding safe assets with a discernible yield nigh on impossible. As an acquaintance of mine said back in 2011 “There’s a war between savers and spenders and us savers are getting hit over the head with a brick at every turn”.

      I suspect the problem is these four banks may be too big, not to fail but for the Reserve Bank of Australia to save should the housing bubble in Australia start hissing air (and outside premium markets it already is). One needs to remember Australian GDP is not that big and the local economy is not that diversified. As a local once wrote “Our economy is built around digging rocks out of the ground and flipping houses”. I am sure he was exaggerating, but it’s beyond doubt mining/energy and housing carry an absolutely disproportionate weight, for the simple reason both sectors are so massive.
      The first sector won’t come back for a while despite moving attempts (and countless billions flushed down the drain) to reinflate the commodity bubble in face of slowly but steadily worsening fundamentals. China will need a whole lot less iron ore, not so much because she’s turning into a “service economy” but because the market for whatever is built with that iron is contracting.
      The second sector is tricky. One needs to understand if this an old fashioned bubble or a heavily manipulated market. The former can usually last only a few years before imploding. The latter can go on for far far longer than anyone can thing and continue even when the rest of the economy is falling to pieces all around it, at which point it becomes a vampire, not the “resource” it’s marketed to be.

      • nhz
        August 5, 2016 at 2:30 am

        fully agree.

        We in Europe have extensive experience with the War on Savers (just got another note from my bank this week announcing negative rates on my business savings account). I haven’t yet noticed ANY banker, politician, journalist or whatever who gives a damn about throwing savers under the bus. Politicians enjoy all the extra goodies they can hand out because of the low/negative rates. People with a mortgage enjoy the lowest housing costs ever, which help them live the good life again, after all they are entitled to that because they were clever enough to buy the most expensive home they could get.

        The amount of voters who profit from ZIRP/NIRP is much bigger than the amount that is heavily punished (primarily savers and small companies here in the EU, although some pensioners are getting hit as well). So it will continue until the financially prudent, the middle class, has been completely erased. US and Oz are probably not far behind.

        And BTW, savers are not just hit by low/negative rates, but at least in my country also because with significant savings you are a ‘financial terrorist’ and miss out on all the tax exemptions, subsidies and freebies that our government doles out on debtors (irrespective of income) and migrants. In order to qualify for the good life, you first have to spend all your capital or at least pretend you don’t have any left.

        As to the vampire sector: the Dutch housing bubble has been going on for 30 years, the whole Dutch economy depends on keeping this bubble afloat because most homeowners have next to nothing of their own money invested. The sky-high valuations (on average 500-1500% higher than 25 years ago) are all based on debt, mostly guaranteed by the taxpayers. And of course, apart from that all savers are on the hook for bailing out the stupid homeowners who took on far more mortgage debt than they could afford. At least the Netherlands doesn’t depend on digging up iron ore for China, their big money-maker nowadays is the far more solid finance sector ;-)

        • Meme Imfurst
          August 5, 2016 at 7:09 am

          You said “People with a mortgage enjoy the lowest housing costs ever, which help them live the good life again, after all they are entitled to that because they were clever enough to buy the most expensive home they could get. ”

          That is the death warrant. The future tables say that the house will be worth basically the same amount as they paid for it in 15 to 30 years…or less as inflation eats the asset and supply increases (or employment vanishes).

          As far as the Dutch are concerned, they do not live in isolation.

          America has been playing this game for 50 years, very few won.

        • MC
          August 5, 2016 at 9:01 am

          Sounds like a heavily manipulated market, which can go on for decades, or at least until it crashes under its own weight.
          I see two closely main problems in your market which will make themselves felt soon.

          First, repressing rates help with interests, but not with principal, especially if asset prices keep on growing. The ECB and banking regulators can force banks to offer 0% mortgages but if home prices keep on increasing at, say, 10% a year loans need to become larger and larger to pay for them, defeating the purpose of 0% interests.
          Second, wages throughout Europe have failed to keep up with real CPI increases since the euro was introduced and keep on being chipped away by immigration. It’s a historical inevitability that to have high wages you need three factors: high worker productivity, conservative monetary policies and a restricted labor pool. Japanese workers throughout the 70’s and 80’s had such high wages because their country met all three conditions. Present day Europe only meet one, hence something has got to give.

          When there’ll be signs the housing market is getting weaker because, say, people don’t want to take out a 40-year mortgage, Dutch regulators will do what regulators worldwide always do when “housing markets get weaker”: they’ll lower requisites, perhaps reaching the “able to fog a mirror = cleared” standards which helped Italian banks pile “up to” €384 billion in NPL’s and which almost cracked (almost… what a piece of rotten luck!) Wall Street in 2008.

          And 2008 taught banks another lesson: subprime loans, because it’s financial toxic waste we are talking here, must be hidden from sight. Italy managed to do that with a mass of NPL’s larger than the 2015 Norwegian GDP for years and Chinese regulators keep on ordering their banks to “evergreen” NPL’s… what can possibly go wrong???

        • nhz
          August 5, 2016 at 9:47 am

          @Meme Infurst & MC:

          yes, there is a problem with the principal but almost no one cares – they simply assume home prices will keep rising forever so there is no need to pay back the mortgage, the home will pay for itself when it is sold. And if not, there is the mortgage guarantee from the government that makes sure the homeowner never loses a penny.

          Obviously such Ponzi’s cannot continue forever, but with the government fully involved it is difficult to predict when it ends. The government-backed fund that guarantees a big chunk of all Dutch mortgages (over 90% in recent years) has a capital buffer that is less than 0.5% of the principal at risk. When that buffer is erased the taxpayers will have to come to the rescue but by that time probably there are no savers, renters and middle class left to plunder. So it’s probably the homeowners themselves who are on the hook for much of their own debt. Nobody knows what will happen when the Ponzi ends, politics will decide who wins and who loses.

          Income for government workers has easily kept pace with official inflation over the last 10-15 years, although that doesn’t say much because the official inflation numbers are bogus (way understated). Non-government wages are usually indeed lagging inflation. Maybe the Dutch banks (several of them at least partly state-owned) might introduce negative mortgage rates to keep the Ponzi going even longer. With the blessing of ECB of course, who is considering buying Dutch mortgage debt (they have been debating the details for a long time, still no final deal).

          I think we are already in the ‘fog-a-mirror’ stage. The Netherlands has about 800 billion of mortgage debt, that’s a lot for a small country (e.g. compared to 384 billion of NPL in Italy). Those Dutch RE loans are still ‘performing’, but I predict that will end very soon when mortgage rates go up or home valuations decline, as most homeowners have no skin in the game.

        • Tim
          August 5, 2016 at 10:59 am

          Property taxes? Insurance, maintenance, up keep?

    • Lee
      August 5, 2016 at 7:05 pm

      That’s right folks, take a chill pill, settle down, and take a look at the facts.

      Those increased rates are for only new money, they apply to only a small % of the deposits at the banks, and the rates will again fall back in a couple of weeks.

      All just a dog and pony show.

      The banks will announce record profits again during teh next reporting period.

      • August 5, 2016 at 7:33 pm

        ALL term deposit rates ALWAYS apply ONLY to NEW money. EVERYWHERE. This is how banks are trying to attract new funding, and they’re willing to pay more because they’re short on cheaper funding.

        Banks are NOT trying to help savers. NEVER!

        If you need money badly enough when lenders are reluctant, you’ve going to have to pay for it with higher interest rates. Just a basic fact. See subprime.

        • Stuart Christie
          August 6, 2016 at 1:26 am

          There are fundamentals misleading statements in this article. You are quoting variable interest rates on loans going down and yet you compare that to deposits of 1-3 years.
          You compare the banks assets to GDP which is income. You should be comparing banks income to GDP.

        • August 6, 2016 at 8:50 am

          I’m not comparing variable rates to term deposit rates or whatever you’re saying. I’m comparing the old term deposit rates to the new term deposit rates (how much they were raised). ===> did you not READ the article?

          Comparing assets (or debt) to GDP is a STANDARD measure to see how large they are in relationship to the economy. We say for example, government debt in Japan is 250% of GDP. And we say that ALL THE TIME. With banks it’s assets. So if you want to know how exposed a country is to its biggest banks, you express their assets in terms of GDP. Even bank regulators do that, even the Fed….

  2. Chip Javert
    August 4, 2016 at 9:26 pm

    Gee. Gosh.

    Them thair Aussie folks might be in for a round (or two) of “taxpayer money goes to banks”.

    This, of course, will be right smack dab in the middle of “your house ain’t worth as much as it used to be”.

    This is not a fun game (for taxpayers), but it’s all for the bankers (and politicians to whom they contribute).

    But seriously, speaking as a red-blooded capitalist WHY ARE CORPORATE ENTITIES ALLOWED TO CONTRIBUTE TO (i.e.; buy) POLITICIANS? I know; I know – because that’s where the money is…

    • night-train
      August 5, 2016 at 2:57 am

      SCOTUS said corporations are people. In practice, it appears that corporations are people when it suits them and business entities when that context is beneficial. I’m not anti-business, but I am for businesses and government acting responsibly. Our current system not only encourages bad behavior and bad investment; it rewards those nonproductive activities.

    • ERG
      August 5, 2016 at 7:06 am

      “But seriously, speaking as a red-blooded capitalist WHY ARE CORPORATE ENTITIES ALLOWED TO CONTRIBUTE TO (i.e.; buy) POLITICIANS? I know; I know – because that’s where the money is…”

      Well. Yeah.

      Do you really think it possible those two 800 pound gorillas can crawl into bed with each other and no fornication will take place?

  3. Chicken
    August 4, 2016 at 9:38 pm

    Wonder what other tricks criminal enterprise central banks have in store?

    • nhz
      August 5, 2016 at 2:44 am

      what other tricks would they need?

      Create money out of nothing and use it to buy up almost the whole economy and resources of the planet. The biggest bank robbery in history is in full swing and our politicians make sure it will continue as planned.

      • peter forsyth
        August 5, 2016 at 11:28 am


  4. August 4, 2016 at 9:43 pm

    Showing yet again why asset bubbles should not be allowed to run to completion [collapse] (or even form in the first place) because of the avoidable stress this places on the entire socioeconomy when thy collapse, not just the bubble “investors/speculators.” There is also the costs incurred by the diversion of capital and talent away from productive activity and into what is always a gigantic loss.

    If the central banks are committed to Quantitative Easing and N/ZIP to ameliorate economic stagnation/recession, they must also be committed to allocation of the ersatz capital into productive and self-liquidating investments, and away from asset bubbles and frauds.

    • Robert
      August 6, 2016 at 10:32 pm

      When Ben Bernanke famously said that in a pinch, money could be dropped from helicopters, he never said that it was going to be dropped only on the roof of the banks that own the Fed. These same banks are, are, after all, allowed to gouge cardholders double digit interest rates, while, to the extent new debt can be heaped on the nation, obtaining money for themselves almost interest-free. There is no interest-free money for the rest of us, except when the assets involved have been inflated. This is how a Ford Mustang, $2500 in 1972 at a 7% loan rate is now $30,000 at 1%. Andrew Jackson’s portraying national debt as sin sounds quaint, but he made and kept his promise to leave office with the nation owing no debt, which is saying a lot. He also accurately described what happens when evil geniuses, from Nicholas Biddle on down, run central banks. Notice how the Fed’s date for raising rates is constantly put off- the banks that own it would like to get away paying no interest forever. And the opportunity to make a killing is reserved for themselves, because they are setting the rates, which is reason enough to end cenral banking. Interest rates, like trust, are earned and not dictated.

      • August 7, 2016 at 10:42 am

        You appear correct, but I have two suggestions:

        (1) Central bank policy/operations are not directed by evil people for evil ends [whatever “evil” means in this context]. Rather their policy and operations are prioritized and implemented to attain goals and objectives much different than those of the large majority.

        Thus correction of the apparent contradictions requires legislative action to reorder the priorities, goals and objectives [mission statement] of the central bank to more closely reflect the needs of the majority, which will most likely require a complete reconstitution of structure and personnel.

        Most likely many of the FRB’s current responsibilities should be transferred to other agencies to avoid internal conflicts of interest, and focus their attention on central banking. For example, all bank regulation and over-sight to be done by the FDIC, and margin account interest rates to be set by the SEC. There are many other “distractions” which should be eliminated.

        (2) A far more serious, and indeed much more dangerous problem is that the FRB prime rate now has a very significant impact on the overall cost of government due to its effects on the cost of servicing or rolling over the national, and indeed all levels of government, debt.

        This effect has been exacerbated by the Treasury’s policy of replacing long-term debt with short-term debt because of the slightly lower interest rates, so that any increase in interest rates will have an almost immediate effect.

        A return to “normal” interest rates will cause significant governmental financial problems, and a Volker type surge in interest rates would most likely result in a severe governmental financial crisis requiring massive monetization of the debt to avoid default as well as collapsing the corporate debt “house of cards,” as well as the “junk” and “Muni” bond markets.

  5. OutLookingIn
    August 4, 2016 at 10:34 pm

    So many cracks developing in the system, that create multiple WTF moments, one suffers confusion to keep them all in sight!

    Here’s another one that has taken the better part of two years to show;

    The US dollar has been stuck in it’s current trading range as per the (DXY) US dollar index, for the past 19 months.
    Whereas the dollar advance/decline line that measures the relative strength of 30 different currency pairs, recently broke below it’s one year long dollar support.

    This is a warning with a high degree of probability, that the US dollar could suffer weakness soon.

    • Meme Imfurst
      August 5, 2016 at 7:50 am

      Considering the dollar as lost 99% of it’s value in 50 years, I suppose the other 1% could loose what is left of the value.

      A race to the bottom is a sign that the globalist will sooner or later create a monetary medium something like bitcoin to bridge international boarders, and at that point all currencies will be par. That is what the Euro did and see how terrific that has turned out.

      • Smingles
        August 5, 2016 at 9:26 am

        “Considering the dollar as lost 99% of it’s value in 50 years, I suppose the other 1% could loose what is left of the value.”

        This is silly.

        If, in the last 50 years, you took cash and put it in a box, yes– it has lost most of its value.

        But that is a ridiculous hypothetical.

        If, in the last 50 years, you took cash and put it in an interest bearing account– anything, even 3-month T-bills, you have GAINED purchasing power.

        I know it drives the gold buggers and inflationistas wild to have to face the fact that the dollar has maintained its value pretty well relative to risk free rates and inflation… but the facts are facts.

        • CV5
          August 5, 2016 at 9:58 am

          Sure….so the poor, the timid, the mentally infirm and pensioners get burned on their savings. You don’t understand the requisite social compact or qualities of money. It’s just a sanguinary free for all at this point. Good luck to your kids they are in for quite a shock.

        • Smingles
          August 5, 2016 at 2:39 pm


          “Sure….so the poor, the timid, the mentally infirm and pensioners get burned on their savings.”

          You are conflating two issues: (1) our current low-rate environment, in which pensioners, and savers in general are not being compensated much for holding cash, and (2) the last 50 (or 100) years in which the nominal value of the dollar has decreased upwards of 99%.

          You seem to be addressing issue (1), where yes, pensioners and savers are getting burned on cash. It stinks, but I’d like to point out that the last thirty years have been a total anomaly in terms of real returns on cash. Real returns for 3-month T-bills between 1928 and 1980 were -0.19%. Between 1980 and 2007, they were 2.1%. In reality, today we’re closer to the historical norm. Savers are only well-compensated for risk-free investments (cash) in periods of great economic growth and productivity– today we’re stuck with a stagnant economy, and numerous deflationary trends. Economically, there’s no justification in today’s environment for high interest rates.

          “You don’t understand the requisite social compact or qualities of money. It’s just a sanguinary free for all at this point. Good luck to your kids they are in for quite a shock”

          Thanks for your concern, I’ll be sure to let them know how much their grandparent’s selfish generation screwed them.

        • CV5
          August 5, 2016 at 3:36 pm

          You missed it man. Seriously. And at this point in history, you will very soon understand what is an asset and what is a claim to an asset.

      • August 5, 2016 at 10:32 am

        Just a technical note: The dollar has lost about 99% of its value (if that much) since the Fed started managing it in 1913. So in over 100 years, not 50 years. Huge difference!

        • Smingles
          August 5, 2016 at 1:48 pm

          And if you were earning even a nominal interest rate on your money, the dollar has retained and even gained purchasing power.

          It’s a very important distinction to make for people who are making a very disingenuous point.

        • August 5, 2016 at 2:34 pm

          Yes … I remember during the years of big inflation in the early 1980s, money market rates were 18%. And if you bought 30-year US Treasury bonds when issued at the time, you ended up with what was one of the best and safest investments ever: 30 years of double-digit coupons, even after inflation had plunged!

          And the minimum wage went up too, and there were regular COLAs. We don’t even know what that is today. Real wages (adjusted for inflation) didn’t get hit until after 2000.

  6. Aussie
    August 4, 2016 at 11:57 pm

    The Banks have the answer: Increase deposit rates in prep for some more funds when the BAIL-IN takes place. There is NO other reason!

    • nhz
      August 5, 2016 at 2:41 am

      probably … although it is doubtful if ordinary savings accounts are any safer than term deposits when SHTF.

      The banks will just declare a bank holiday and use all savings they can get their hands on to pay for outstanding mortgage and company debt; after that no savings will remain except for some gratuitous exemption which will definitely be much lower than the official 100K deposit guarantee (at least in Europe, don’t know about Oz).

      • Meme Imfurst
        August 5, 2016 at 7:25 am

        In 1929 as the streets were wall to wall with angry depositors wanting their saving, J.P.Morgan wrote a check for $1,000,000 to himself as he stared out the window at the fools. You know what happened next.

        To this day not one banker has paid for their crimes except perhaps in Iceland, but none in the USA.

        • nhz
          August 5, 2016 at 9:53 am

          even in Iceland most of the jailed bankers were released after a very short time :-(

          in Europe a few bankers were jailed or (privately) fined, but probably because they cost some TBTFW US banks a lot of money ;-(

  7. Kreditanstalt
    August 5, 2016 at 12:20 am

    Nuttiness…try this expose of the bubble…if the banks are loaded up with this, watch out!


  8. Julian the Apostate
    August 5, 2016 at 5:00 am

    We have been hearing about “the chase after yield” since 2008. While no bank is safe anymore, perhaps someone with a brain in Oz banking has said “let’s give all this hot money around the world a safer haven to flee into.” It might be pie in the sky, but 3% yield in the British Commonwealth would look a hell of a lot safer than junk bonds to those opposed to the Expensive Door Stop or the Shiny Industrial Metal. Having flight capital rushing in to take advantage of the new rates would sure polish up the reserves. Just a thought.

  9. dave
    August 5, 2016 at 5:41 am

    Why aren’t yeild chaser dumping their money in the Aussie bank CDs? Yeah the banks may be in trouble but someone will bail them out.

  10. Petunia
    August 5, 2016 at 9:25 am

    As the resource industries in OZ crater they will be defaulting or restructuring debt. That takes money the banks may not have on hand or can get from the central bank. Even though housing is doing well and might get better, commercial lending may be taking a big hit, a hit the banks can’t overcome. Paying a premium for deposits may be a way to give them enough cash flow to restructure a bunch of commercial loans on the way to becoming a big problem.

    I say this because I read an article yesterday, that JPM is consolidating its commercial lending servicing throughout the southern US. They have moved the servicing mostly to Dallas and Houston to save on costs. No doubt a concession to big oil’s downturn.

    • Lee
      August 5, 2016 at 7:01 pm


      They already have taken action. Last time the RBA cut rates by 25 bps all but the ANZ passed on the full cut.

      ANZ had lent a bunch of money to companies in trouble and had taken a hit on those loans.

      So what did they do?

      Yep, they screwed the people that had ARM’s with the bank and passed on only 19 bps of the cut.

      And what did ALL FOUR of the big banks do this time? Why in order to pad the bottom line they passed on only about half of the cut.

      Consumers in Oz get screwed on prices for almost everything here and the commercial banks are the worst.

      Even the government here gets into the act. Now when you pay your car registration by credit card they slug you an additional $5 or so fee for doing so. Of course you can pay cash: get the cash out of the ATM/bank, drive down to the registration office or post office, wait in line for who knows how long, or just do it online and cop the fee.

      It now costs over A$800 to register the cheapest car here for a year in Victoria.

  11. August 5, 2016 at 10:19 am

    Not sure if many commenters here are aware of this, but the Australian automotive industry is closing down completely over the next 15 months.

    Yep, all Australian automotive manufacturing capacity will be shuttered by October 2017 after about a century or more of operation.

    Ford closes its Australian automotive manufacturing in October 2016.

    Toyota closes its Australian automotive manufacturing in October 2017.

    General Motors Holden closes its Australian automotive manufacturing in October 2017.

    Sure, the Australian automotive manufacturing industry has been winding down for the past few decades and now doesn’t represent a significant part of the Australian economy.

    However, the closure will impact tens of thousands of jobs directly and some estimates say up to 200,000 jobs will be lost in the automotive manufacturing industries, the supplier industries, and related industries as part of the knock-on effects.

    However, what this really shows is just more proof that the insane real estate and property prices in Australia are quite literally eating and destroying the rest of the economy!

    It really is extraordinary this is allowed to happen, but it is.

    Interestingly, just the other day, Thailand became the No. 1 country exporting cars to Australia, overtaking the long-time No. 1 Japan. Of course, many of these cars manufactured in Thailand are owned by Japanese automakers, so in a sense it is a double-Japanese hit via a low cost third country.

    Once October 2017 rolls by i think Australia assumes the mantle of the world’s largest economy that doesn’t produce itself any significant number of automobiles!

    There are still factories producing buses and small scale car manufacturing operations, but we are talking (I believe) well under 10,000 vehicles nationally at that point – ie, basically nothing.

    Looking at the list of the world’s largest economies – I’m guessing the current holder of this mantle – ‘World’s largest economy that has no significant automotive manufacturing capacity’ is Switzerland (19th?) or perhaps Saudi Arabia (20th?).

    Australia being variously ranked as the 12th or 13th largest economy in the world.

    • MC
      August 5, 2016 at 11:30 am

      I am really intrigued by this: usually automakers blackmail governments into granting them enough benefits to turn even money losing factories into profit turners.
      FCA and PSA jointly own a factory in Southern Italy (SEVEL) manufacturing vans which has been sucking money from the Italian taxpayer for decades. Each time these benefits are threatened, the factory suddenly becomes “uneconomical to operate” until the Italian government gives in. At that point the factory becomes a profit turner overnight. Again.
      It’s your run of the mill Punch & Judy Show with the taxpayer getting Punch’s club on the head.

      GM, Ford and Toyota know very well how to play governments like fiddles so either Canberra refused to give in for whatever reason or even with incentives Australian factories are financial black holes.

      Oh, and about Thailand. The reason is very simple: the Toyota HiLux is now made there for all markets worldwide bar latin America. ;)

    • nick kelly
      August 5, 2016 at 1:16 pm

      True- I’ve been pointing this out for months to commenters lumping Canada in with Aus. The Canadian economy is larger and far more diversified. As well as BIG auto production it makes a variety of aircraft.
      Steel plants are troubled, like everyone’s
      At times Ontario has overtaken Michigan in autos.

      Re: real estate- I saw some examples of what you get for 800K in a suburb of Sydney and I would say it’s quite a bit more expensive.

      • August 6, 2016 at 7:59 am

        Basically the Government said we’ll give you this much money, and no more, and if that’s not enough – go jump, we aren’t sending more cash into your pockets.

        (January 2014)
        (Treasurer) Joe Hockey sets hard line on handouts

        TAXPAYER subsidies will not be paid to struggling companies that fail to fix their problems under a hardline edict from Joe Hockey aimed at forcing employers and unions to scrap workplace deals that push up costs.

        Rejecting aid for “lazy” companies, the Treasurer told The Australian that federal cash would not be used to shore up dividends or to continue poor industrial practices.

        Mr Hockey seized on an admission from General Motors yesterday that its decision to end manufacturing in Australia was made regardless of government incentives, as the comments escalated a wider fight over industry assistance.

        The Treasurer cited the company’s statements to accuse Bill Shorten of perpetuating the “fantasy” that the Holden factories, due to close in 2017 with the loss of 2900 jobs, could have been kept alive by a Labor government.

        As attention turns to Toyota as the last local carmaker, Mr Hockey also attacked union leaders for being “hell-bent” on preventing the company from slashing costs by negotiating a new workplace deal.

        “The government should not be subsidising poor workplace practices,” he said in an exclusive interview.

        The new message applies to all companies ranging from Qantas to fruit producer SPC Ardmona as the Coalition government fends off industry demands for handouts or intervention to fix business problems.

    • Lee
      August 5, 2016 at 7:48 pm

      The biggest problem with the industry here is that the cars they produced and are still producing are crap.

      Crap quality, crap styling along with crap prices.

      Add in the problems with unions and why even bother.

    • Mike
      August 14, 2016 at 5:06 pm

      Australia has decided it is so advanced it doesn’t need tariffs to protect its car industry. Amazingly its car industry is now over. It is truly hilarious how stupid the idea is that large, strong economies “need” to rid themselves of tariffs to “do what they are good at”. It is a plausible idea but has proved utterly false in practice.
      The US without factories has proven to be a mall with Silicon Valley and Wall Street, New Zealand is a farm with hotels and Australia is a mining operation with hotels. Specialization has helped only the massive businesses and the hyper wealthy. It has been an utter disaster otherwise.

  12. Sound of the Suburbs
    August 5, 2016 at 6:35 pm

    In a globalised world no one pays any attention to what is going on elsewhere.

    In 1989, Japan had a massive real estate bust that it still hasn’t recovered from.

    No one noticed and everyone has been inflating their housing markets.

    In 2008, the US housing market collapsed with devastating consequences; to make things worse they leveraged it up with derivatives.

    It must be a one off “black swan” event (don’t mention Japan).

    Ireland, Spain, Greece (don’t mention Japan).

    I can’t see beyond the end of my own nose, there is nothing wrong with housing bubbles.

    “Our housing bubbles burst, how can this happen?” everyone in unison in Australia.

    Who’d have thought it?

  13. warren reid
    August 6, 2016 at 7:46 am

    The leaders of the future will not retain their wealth if it has been gained thru the exploitation of their followers ….examples of this principle are evident everywhere you look…shame these greedy banks are so ignorant

  14. Lee
    August 6, 2016 at 5:22 pm

    To see how prices appreciated over the past ten years or so In various Melbourne suburbs take a look at the map in the article:


    This time period really shows how increased demand and increased population growth has pushed up prices in certain areas. From 2006 to 2016 the population in Melbourne area has increased by around 1 million people.

    You will also notice that the areas that haven’t hit that magic $1 million median are far away from the CBD or are not in good public school areas.

    This is shown by buying by Asians in certain areas:

    “But in 2015, the surge of buyer activity around Box Hill, Glen Waverley and Mount Waverley propelled those areas over the million threshold. Average property prices now sit on about $1.2 million in these suburbs, driven, demographer Bob Birrell says, by locals and an “Asian plutocratic class” competing for the best housing stock in the inner east.”

    And this week’s market report:


    Over the next month or so the auction market should start to pick up.

    It will be interesting so see if there is still much buying going on in the areas dominated by Chinese/foreign buyers in the past as a result of the new additional taxes that started on 1 July.

  15. Michael Francis
    August 6, 2016 at 6:50 pm

    Wolf, if you lived in Australia would you take advantage of the Banks new offer of 3% interest or put your money under the mattress.

    • August 6, 2016 at 7:19 pm

      I’d jump on it for part of my fixed-income investments, but I would make sure to stay under the deposit insurance limits.

  16. Pete Franklin
    August 7, 2016 at 8:19 am

    Wolf, whiff? maybe, on the housing lending side, but is not a deposit pricing driven event. The Aussie banks have always had a big funding gap, and reliant on wholesale funding. It’s the nature of the beast, and been this way long before the housing market boom. The rise in TD rates is for a small portion of the deposit market (which itself is smallish anyway), and a way for the Oz big banks to capture the little additional share of market. It’s a tried and tested approach, and yes will cut into NIM, but not a huge deal (the offset is proportionally less cuts in mortgage rates) given the banks are still “enjoying” good ROE. For now.
    BUT – as you and other point out – the mortgage lending side is the issue. When that bubble bursts, the funding gap will be the least of the big banks worries. With 60% of the banks assets being mortgages, and 40% of the mortgages being interest-only, when SHTF, the banks will be cut off from the wholesale markets and then rescued.

    • August 7, 2016 at 10:00 am

      RE: … With 60% of the banks assets being mortgages, and 40% of the mortgages being interest-only, when SHTF, the banks will be cut off from the wholesale markets and then rescued.
      How could any rational regulator allow this condition to develop? Indeed, given the known result of this type of “lending” in many other countries, how could any ethical Board of Directors, with their primary duty the long term well being of the shareholders, allow such a situation to develop?

      Given the situation, a banking collapse is now almost inevitable, as is a taxpayer “rescue.” The question is how will the bank officers. Directors AND REGULATORS be held accountable? What changes in legislation/regulation are to be implemented to prevent a repetition? For example should “interest only” or “balloon note” residential real estate mortgage loans be prohibited?

      While written in 2013 to my legislators specifically about the US residential real estate debacle, the following contains suggestions that may also apply in your situation. As I wrote in the letter, we should not passively accept periodic economic crises any more than we accept periodic plagues and pandemics.

      • Pete Franklin
        August 7, 2016 at 11:06 am

        yeah, do the math. AS1.5trillion mortgages outstanding. Using the U.S. as a proxy where 10% of all mortgages foreclosed in 2008 alone (>25% of subprime). So, expect about AS150-200 billion to be written off over time. Total capital of the Big Four? 200 billion.
        Shareholder wipe-out. I doubt a collapse, but probably a resolution company-type restructure. Unlike the U.S., politically the Aussies won’t let the banks off the hook, it will be a government run op, like Sweden in 1980’s.

        Reason directors, CEO’s, regulators aren’t responding already is because they have vested interest not to, and a move to stop the bubble will almost certainly pop it, immediately.

        • Lee
          August 9, 2016 at 5:58 am

          I do like a good ‘doom and gloom’ story and they seem to a be a regular happening about the Australian RE market.

          Yeah someday the banks here are going to be in trouble, and yeah someday, the RE market is going to go down.

          However,the Australian banks trouble is going to first come loans made to companies and not from residential real estate.

          Second, just in BC, Canada, the government will be the reason that residential RE market has problem.

          Taxes have already increased and have had an impact on the market in both Sydney and Melbourne.

          Any restrictions on immigration will also impact the market.

          The first crack in the market will be a result of decreasing demand as a result of lessening population growth.

          Residential RE loans in Australia are recourse loans and the bank will take the house, all your assets, all your jointly owned assets, and garnish your wages until they recover the outstanding amount of your loan. To even compare the subprime ‘mail in the keys to the bank’ in the USA RE bust to Australia is absurd and ridiculous.

          If and when the “SHTF” and Australian banks are unable to get funding overseas, the rest of the world will be in a heap more trouble than Australia.

  17. sinbad
    August 9, 2016 at 12:58 am

    When the dodgy US CDO’s blew up the global economy in 2008, the Australian banks had difficulty getting wholesale finance. The CBA has always had a large depositor base, and they did much better than the other banks that relied on New York and London for funds.
    The banks probably think that the US economy is going to blow up again, and are trying to avoid being caught up in GFC 2.

    Hedging against risk is not desperate, it’s smart.

  18. Bill Fee
    August 9, 2016 at 9:50 am

    So Thay don’t have guns ,,,,, can’t protect themselves from Goverment or the BANKS ! Oh well stupid is as stupid dose !
    Thank you I’ll keep my guns . MOABE Me !

    • August 9, 2016 at 12:45 pm

      While your spirit of self-reliance and independence is to be commended, be reminded that firearms are only effective against low level physical threats such as Redcoats, carjackers, and home invasion street thugs.

      Threats in the abstract such as massive inflation, creation/bursting of asset bubbles, and governmental/corporate accounting fraud are immune, short of a violent revolution complete with “wigs on the green.”

      The only practicable defense against the abstract threats, increasingly employing novel techniques such as negative interest rates and “derivatives,” is increased and continual citizen awareness and active participation in the political process.

      As Justice Brandeis (1856-1941) cogently observed “”Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

  19. Mini
    August 10, 2016 at 3:48 am

    CBA just posted a $9.3 billion profit. It is hard to reconcile that this bank will need a bailout -or is $9.3billion not enough? This is totally confusing. Where would this amount go to if the bubble burst? what kind of profit/loss did Bear Sterns or Lehman Bros have prior to going under?

    • August 10, 2016 at 7:43 am

      US banks posted big profits before they collapsed. Bear Stearns and Lehman were hugely profitable for decades. Then they collapsed. Then people discovered that it all had been a bad joke.

      The income a bank shows on its income statement and the “capital” it shows on the balance sheet can dissipate into thin air without notice. You don’t really know what’s inside of a bank until after it has collapsed and you start sorting through the debris (the “assets”).

    • August 10, 2016 at 12:46 pm

      You seem to be a person that says what they mean, means what they say, and in general “follows the rules,” therefore you are quite reasonably confused about the condition of banking/finance. Three (overlapping) caveats, among many”

      (1) “Profits” can be classified as “honest coin of the realm,” Enron type “cobwebs and moonbeams,” or something in between, because of the proliferation of mark-to-market/mark-to-myth asset valuation schemes possible because of increasingly lax regulation and the growing use of “creative accounting.”

      (2) Any “profits” will most likely not be retained by the business, but will be “skimmed” by the officers/directors, dissipated as “dividends” or just “disappear.”

      (3) Most likely the “profits” are the results of excessive leverage, debt “bundling” into CDO instruments and sale to credulous “investors,” or other “high risk – no loss limit” activities such as derivative contracts and “short sales” of financial instruments and commodities, not legitimate returns from investment in the domestic economy.

  20. Grant Harper
    August 10, 2016 at 5:41 pm

    NZ Reserve Bank has just reduced its cash rate to 2.0% and the NZ banks immediately increased the savings rate on deposits – same paic?

    • August 10, 2016 at 6:11 pm

      Makes you wonder!!

  21. Grant Harper
    August 10, 2016 at 7:34 pm

    Three of the big Aussie banks (ANZ, Westpac, National) are also the biggest banks in NZ, so there is a strong link there.

  22. Lee
    August 11, 2016 at 5:54 pm

    Well a few facts about Commonwealth Bank as there seem to a lack of numbers about banks.

    The first number that pops out is the cash ROE of the bank: a huge 16.5%.

    That has to be at the top of the range among world banks, if not in the top for a regular bank.

    It pays a dividend of A$4.20 per share or about 76% of earnings.

    (In other words the bank can increase rates on ARM’s, not pass on rate cuts, or increase them more in order to move money from the ARM’s to the shareholders as needed.)

    And so much for all that bs about ‘declining’ profits. Net interest income was up 7.5%. Net interest margin was down 2 bps to 2.07%.

    This was despite increased operating costs going up 4% and and loan impairment costs up 27%.

    And as per my previous posts about another Australian bank:

    “these costs were a result of “predominantly due to higher provisioning for resource, commodity and dairy exposures.”

    So very little from residential real estate there.

    For funding purposes, 66% of funding comes from customer deposits and for those ‘worried’ about that wholesale funding problem the average length of that funding is 4.1 years.

    Retail banking profit increased by 11% which offset falls in other areas (Thanks sucker ARM payers!!!!)

    Basel III capital ratio is 14.4%. Short term wholesale funding is about 1/7th of total funding requirements.

    Now the most interesting part of the report is the spread on interest earning assets and interest bearing liabilities.

    The banks here continually bitch and complain about ‘increased funding costs’ as the reason for not passing on the cuts in official interest rates in full.

    In effect all they re doing is padding their bottom line and offsetting increased costs in other areas of their businesses.

    They are making the ARM payers pay for the banks’ screw ups in those areas.

    Last year the average yield for the bank of home loans was 4.77%. This year is was 4.42%. This is a fall of 35 basis points and something one would expect in a falling interest rate environment as new ly written loans have lower interest rates. For personal loans the average yield actually increased by 2 basis points, but for business and corporate loans the yield fell a whopping 59 basis points.

    (Bad loans really hit the bottom line there.)

    Funding costs – liabilities – those things that the banks here are moaning about costing them more, well guess what – reality is a little different.

    Transaction deposit costs went down 10 basis points, savings deposit cost went down 49 basis points, investment deposit costs went down 38 basis points, CD deposit costs went down only 1 basis point, liabilities at fair value (whatever they are) went down 6 basis points, debt issues went down 29 basis points, loan capital went down a whopping 78 basis points, and ONLY one increase in funding costs noted on about 4 % of liabilities was to other institutions of 6 basis points.

    Overall funding costs for the bank went down by 35 basis points over the year………….

    So much ‘increased funding costs’…………

    We are really suckers here in Australia.

    • August 11, 2016 at 6:18 pm

      Bear Stearns and Lehman had great numbers too.

  23. Lee
    August 11, 2016 at 9:17 pm

    Australian commercial banks are not the same as Bear Stearns and Lehman Brothers.

    And the gist of the article was that a SHTF moment in Australian had happened.

    IMO it hasn’t, the Australian banks are not in any funding trouble, the terms of funding have improved for Australian banks, the reliance on fixed term deposits has been overstated, and the increase in deposit rates was nothing more than a political stunt for banks here to cover their collective asses in order to pad their bottom lines by ripping off those that have ARM’s with the banks.

    CBA could increase those rates by another 200 basis points and raise an additional amount of funding similar to that kind of funding that they carry on their books and still make a few bucks as result of not passing on the full RBA interest rate cut.

    • Mike
      August 14, 2016 at 5:23 pm

      They are not the same as Bear and Lehamn: they are far worse. The bubble here never got even close to what has happened in NZ and OZ. Pricing there is surreal. The guy fixing your car has a house that is “worth” seven figures (assuming he is a baby boomer and hasn’t had to buy recently).

      Another point which no one gets yet is that Oz banks are portfolio lenders. The utter garbage they are carrying is their problem. At least in the US some banks were smart enough to sell the trash to people who couldn’t be bothered doing ten minutes worth of research about what they were buying.

      I think raising the deposit rate is something of a political stunt but that has implications you haven’t thought of: it gives a very clear picture of what their wholesale funding rates are (very high) and is also horrifying from the perspective that they don’t foresee many people with any cash actually taking out a CD. This is without even going into the fact that they are a sovereign with their own currency and create their own OZ dollars. The fact they need ANY funding ever is sad.

  24. Lee
    August 12, 2016 at 5:12 pm

    “The Reserve Bank noted that term deposits of the maturity where banks have increased interest rates account for less than 2 per cent of total bank funding. ”



    Much ado about nothing

    • August 12, 2016 at 5:59 pm

      A couple of things:

      – 2% of a megabank’s “total funding” is a big amount, and if the banks needs that 2% and doesn’t have it, it could cause substantial harm.

      – They JUST STARTED. It’s supposed ATTRACT deposits. CBA alone expects to attract over $1 billion a WEEK with this measure. If this continues for a year, that’s over $52 billion!!!

      It’s very expensive for a bank to do this at these offered rates.

      Did you listen to the video? How some folks are ticked off because the banks are NOT fully passing on the rate cut to borrowers. In other words, they don’t want to open the money spigot at the other end any wider – because they’d need even more funding….

      Look, Lee, this kind of thing simply DOES NOT HAPPEN normally. This is an abnormal situation. Something is going on. And it smells of desperation.

      • August 12, 2016 at 6:47 pm

        RE: How some folks are ticked off because the banks are NOT fully passing on the rate cut to borrowers.
        So close one account and open a new one, if necessary at another bank.

        • August 12, 2016 at 7:03 pm

          There are two things that happened when the RBA cut its rates by 25 basis points:

          – the big four banks RAISED their offered rates on certain time deposits and by a big jump, up to 75 basis points or so. This was totally bizarre and I don’t think ever happened anywhere. But savers make more money if they buy one of those CDs. And they love it. But this is very expensive funding for the banks.

          – banks lowered their lending rates, such as mortgage rates, by less than the 25 basis points that the RBA cut its rates. That’s what the folks in the video (including PM Turnbull) were lambasting.

          Banks did this just about instantly as the RBA cut its rates, and in a coordinated fashion. This had all been planned.

  25. Lee
    August 13, 2016 at 3:23 am


    The last time they raised rates on the same kind of funding the increase lasted less than two months.

    The banks then cut the rates back to where they were.

    So let’s check back in a couple of months and see what the rates are then.

    If you are worried that a 2% loss of funding is going to send Australian banks to the wall then you guys in the USA had better sell everything, heads for the hills, and kiss your collective rears goodbye as you’ll be hit 10 times worse than anything that happens in Australia when that happens.

  26. Lee
    August 13, 2016 at 5:54 pm

    Guess we’ll have to put off popping the bubble in Melbourne for another week:

    “Sellers held the ace cards on Saturday as buyers confronted stock shortages and resurgent purchasing by the Asian market.

    The Domain Group posted another buoyant clearance rate of 80 per cent from 419 reported auctions, up on last week’s 77.9 per cent result. The results of a further 98 scheduled auctions were unreported.

    More than 500 auctions were held in Melbourne, 280 fewer than on the same weekend last year. The current listings crunch means that a growing portion of properties are selling in isolation, with no similar homes competing against them.

    This trend, most evident in the $2 million-plus segment, works to boost prices as prospective buyers focus all their attention on one property.”


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