The N Z RBA has just ann that bank stocks cannot pay dividends until there is a recovery, this means that on top of the N Z banks not paying a dividend to N Z investors they cannot pay any dividend to their Aust parent bank !
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The N Z RBA has just ann that bank stocks cannot pay dividends until there is a recovery, this means that on top of the N Z banks not paying a dividend to N Z investors they cannot pay any dividend to their Aust parent bank !
Everything possible must be done to prop up the housing bubble that stands in place of our deceased economy. If banks stop lending a 7x price-to-income ratio will not remain sustainable.
The big NZ banks don't pay dividends to NZ investors, of course, it's the Aust parents who pay, in "normal" circumstances. How they ( the parents) will be affected we wait to find out. The shareholders of the smaller NZ banks are the ones directly affected by the RBNZ's dictum.
If i own Anz shares purchased on the ASX what would be my prognosis regarding a divie?
You would be entitled to it.
Agreed................................
ie ANZ Aussie.
Banks supply the "Oil" for economies to function,that is why RBNZ is relaxing capital ratios and providing liquidity.
After the South Canterbury Finance fiasco they are not guaranteeing 100% of loans,just 80% which should stop "foolish" bank lending.Lesson learnt.
RBNZ and the Govt are playing their part,and I expect the banks will play their part.
ps.I doubt there are many business people, who have not at some time, been very lucky to have had a supportive bank.
Europe has done it too. We could hear the squealing from here if they did it in Australia. From what I've heard self managed super schemes in Australia are heavily weighted to the banks and other losers.
Marketscreener.com has the market cap of financial stocks within the ASX200 as being $295b (and that is after the recent price declines). The next three biggest categories are basic minerals at $177b, Healthcare at $110b and Industrials at $66b. Any Australian super scheme (be it self managed or not) that kept anything close to ASX200 weightings will have a big holding in Australian banks.
So after yesterday's announcement will the banks pay a dividend to retail investors?
FWIW, Citibank has just updated its reports on the big 4 Australian banks saying it does not expect the RBA to follow the European and NZ regulators in banning dividends because so many people depend on them. Citi does expect dividends to be cut which is hardly surprising.
If they suspend divi payments then ANZ should re test its recent lows of NZ$ 15. {or lower}
Is the high kiwi$ relative to au$ an advantage when buying into nzx Ausi banks. Are they starting to look reasonably priced all things considered ?
As to the currency, the NZD has gained against the AUD over the last ten years (link to chart below) meaning shifting money from here to there has been a losing trade as far as the FX is concerned. I've been around long enough to remember all the smart, sophisticated investors who, on the advice of their smart, sophisticated bankers, took out low interest loans in Swiss francs in the 1980s and then got pummelled when the FX rates moved against them. Then there's me, thinking that buying NZD at 5.08 to the HKD back in January was a smart move (it's now at 4.63). So forecasting FX movements is a bit of a mug's game as far as I'm concerned.
That said, right now, while I'm expecting NZ to get past the worst of Covid-19 faster than Australia, I'm worried that NZ's more rigorous and total shut-down will hit the economy harder and for longer. So, as far as I'm concerned buying AUD (which is effectively what you are doing if you buy ANZ or WBC on NZX) is a bit of a punt. A better reason for buying shares in non-NZ companies is diversification away from NZ's small economy. Of course, if you are buying to diversify away from NZ Inc, your choices need not be limited to a couple of Australian banks.
As to ANZ and WBC, IMHO it depends on whether or not they need to do a capital raise. Of the 7 brokers' summaries listed on FNArena, only the Macquarie summary mentions a capital raising but all of the brokers are assuming that the dividends will be substantially cut - in some cases to zero in the near term.
Side note: if you want diversification away from NZ while staying on the NZX there're a few listed investment trusts including Barramundi which invests in Australian equities.
Disclosure: hold WBC
https://www.xe.com/currencycharts/?f...o=AUD&view=10Y
I have been looking closely at WBC from an historical basis recently in an exercise that is continuing. But I am wondering if my analysis will become an historical irrelevant discourse. What got me thinking was this latest capital adequacy update from WBC (pre Covid-19 era I might add).
https://www.westpac.com.au/content/d...ember_2019.pdf
On page 10 there is a break down of credit risk by sector. But all of those sector risks are adjusted and represented to produce RWA or Risk Weighted Adjusted figures. Yet nowhere in the document, or anywhere else I can find for that matter, does it state what these risk weighted adjustments are. I find myself wondering if in these Covid-19 times, these risk weighted adjustments are still correct. Because if they are not, then these risk weighted adjustments may be producing a seriously misleading picture of the capital requirements of the future WBC in particular and all banks in general. Thus the 'reasonably priced' question posed becomes very difficult to answer.
Thoughts?
SNOOPY
I don't know specifically what the RBA requires but Basel III (which provides the global capital adequacy framework for banks) increased the risk weightings used in calculating banks' capital requirements (especially exposures to real estate). There's a summary of risk weightings on pages 3-4 of the attached paper from BIS. There are a number of other factors which go into calculating how much risk weighted capital a bank needs and how much it has (most of which is well beyond my level of understanding) but two points can be noted:
1. banks have higher capital levels now than they did pre-GFC; and
2. those higher capital levels are are measured using higher risk weightings than they were pre-GFC
I had a brief look at the RBA website but didn't get very far. I did note the following from an April, 2020 report:
"Post-GFC reforms have ensured that large banks had much bigger capital and liquidity buffers before the onset of the pandemic than they did prior to the GFC. Regulators are encouraging banks to draw down these buffers rather than curtail lending and other activities. Other parts of the global financial system have also been strengthened over the past decade, including over-the-counter derivatives markets."
https://www.bis.org/bcbs/publ/d424_hlsummary.pdf
https://www.rba.gov.au/publications/...l-systems.html
A good question, snoopy. Like a lot of our current assumptions, credit weightings will need to be re-thought in the light of the new reality when the world resumes some level of "normality".
Thanks for the above reference
Pages 3 and 4 look like an index. The tables on 'Overview of revised standardised approach to credit risk' seem to be on pages 7 and 8.
It is interesting that you mentioned 'real estate', because that was a sector that was in the forefront of my mind.
I am not so sure you are right about real estate being treated more conservatively. The old Basel 2 standard had residential real estate given a blanket RWA factor of 50%. This means that a bank was allowed to loan $2 for a real estate loan, and they would have been regarded as having the same adjusted leverage as if they had lent just $1 on a standard loan. This was a serious incentive to lend against residential real estate.
Now if we look at residential real estate, page 8 of your reference, then under Basel 3 the RWA factor changes according to the equity you hold in your house.
Homeowner Equity RWA Factor Below 50% 20% 50%< <60% 25% 60%< <80% 30% 80%< <90% 40% 90%< <100% 50% >100% 70%
This looks in every way less conservative than the old Basel 2 standard to me. Think of the case of the young couple who buy a house with a 10% deposit. The house market falls by 10% wiping out their equity. Now their loan changes from an RWA rating of 50% to 70%. That means a bank that has $1bn of capital to support such loans now suddenly needs $1.4bn to support those same loans. And that 40% increase in Tier 1 capital (probably shareholders funds) must be found overnight! This has surely to be a very scary prospect for bank shareholders!
I agree that the banks have more capital than at GFC time. But it looks like they might require more capital as well, as people they loan to either have their equity either wiped out or significantly diminished. And change RWA rating as a result. Scary times ahead for bank shareholders? Or more mortgagee sales?
SNOOPY
It makes sense in a real estate market that is going up or liable to go up. Under Basel 2 the RWA would not change if the real estate market had a downturn. But under Basel 3, the RWA goes up if property prices fall. That means the bank needs more capital to support the same loan. At least that is how I read it.
SNOOPY
Reading about credit risk, it strikes me that there are so many 'credit risk' buzz abbreviations, that it is almost impossible to read up on the subject. So I have decided to list some of these abbreviations for future reference.
Most of these are those definitions from the following book.
"Final Basel III Modelling: Implementation, Impact and Implications by Ioannis Akkizidis and Lampros Kalyvas"
CCB = Capital Conservation Buffer
CCR = Counterparty Credit Risk
CVA = Credit Valuation Adjustment
VaR = Value at Risk
DR = Default Rates
EAD= Exposure at Default
ECRA = External Credit Rating Assessment (One alternative approach for calculating RWA)
EL = Expected Loss
UL = Unexpected Loss
ES = Expected Shortfall
FRTB = Fundamental Review of Trading Book (Revision of the market risk framework).
IMA = Internal Models Approach
IRB = Internal Ratings Based
LGD = Loss Given Default
LR = Leverage Ratio
NSFR = Net Stable Funding Ratio (A longer term ratio designed to monitor maturity mismatches over the entire balance sheet).
PD = Probability of Default
RWA = Risk Weighted Assessment
SA = Standardised Approach (The advanced approach is based on an IMA that has to be approved by regulators)
SMA = Standardised Measurement Approach (a standardised way to deal with operational risk).
SCRA = Standardised Credit Risk Assessment (Second alternative approach for calculating RWA). The SCRA requires an assessment of credit risk exposures into three categories: Grade A, Grade B and Grade C. SCRA is usually used when there is no ECRA available. Each grade must have a minimum criterion.
SNOOPY = Snotty Nerdy Outrageous Orderly Puny Yelling
One area that is causing me concern in this "Covid-19 market" is the amount of money that banks have loaned towards business. In particular I am thinking about those businesses not large enough to be listed on any market, yet still large, right down to SMEs (excluding traditional 'really small business' that is likely to be funded by a mortgage taken out over the proprietors home, out of sight of these rules). These businesses do not have externally verified credit ratings. Yet they are still a significant part of the business loan book for any bank.
Using traineeinvestor's supplied reference:
https://www.bis.org/bcbs/publ/d424_hlsummary.pdf
I think such investments are classified under the Standardised Credit Risk Assessment Approach (SCRA) approach. Under SCRA there are three risk weight grades: Grade A, Grade B and Grade C.
Grade A: This grade bucket would include exposures to bank counterparties that have adequate capacity to meet their financial commitments (including repayments of principal and interest) in a timely manner, for the projected life of the assets or exposures, and irrespective of economic cycles or business conditions.
Grade B: This grade bucket would include exposures to bank counterparties that are subject to substantial credit risk, with repayment capacities dependent on stable or favourable economic or business conditions.
Grade C: This grade bucket would include higher credit risk exposures to counterparties that have material default risks and limited margins of safety.
Unlike exposure to retail mortgages, where there are definite risks ascribed based on the amount of equity the home owner holds, these 'grade' classifications seem somewhat wishy washy. Nevertheless, there is probably no reasonable alternative way to rate business loans.
The standardised credit risk table and associated risk weighting for the three grades of loans is as follows:
Grade A Grade B Grade C Risk Weightings 40% 75% 150% Risk Weightings (Short Term) 20% 50% 150%
There is flexibility from the banks point of view as to how each business loan is classified.
"A bank may classify an exposure to a higher-risk grade (ie with a higher risk weight) even if it meets the minimum criteria set out for a lower risk grade, or has not breached the triggers of the higher risk grade."
One might imagine our banks are applying this 'revision' clause right now as they review support for business after the lock down. Yet any damage behind the scenes from such downgrades will also flow through to shareholders. If a business loan goes from 'Grade B' to 'Grade C' the amount of capital required to support such a loan doubles. That must be a huge concern to all bank shareholders! Who could have imagined back in January that a small operator like a dental practice, trading successfully, could be suddenly instructed by the government to close. Would not the bank have to suddenly downgrade such a business's risk profile from 'Grade A" to "Grade B"?
SNOOPY
Guaranteed up to 80% by Government?
Yes there is a scheme for new small business loans to be 80% guaranteed by the government. But I don't think that applies to existing business loans?
However, these government guarantees are a different issue to the one I am raising here. The rating of a loan, be it 'Grade A' , Grade B' or 'Grade C' is dependent on how well a business can operate in a given business environment. Guaranteeing a loan (to 80%) won't change the environment in which the business operates. So for capital adequacy purposes under Basel 3, as far as the bank is concerned. I don't think the government guarantee makes any difference. My interpretation on this point could be wrong. But right now I find myself far from pacified by the governments 80% loan guarantee, in relation to the amount of capital a bank is required to hold to support a business loan.
Of course once a loan fails, that is where the 'benefit' (the bank still must wear 20% of the loan loss remember), comes in. I would love to be wrong on this point though!
SNOOPY
I would very much like to know what the debt to GDP ratio would be estimated at and the impact of this to banks, I can't seem to find any policy document or fiscal forecast from the government!?
From across the ditch...
April 27 (Reuters) - National Australia Bank Ltd (NAB) on Monday announced plans to raise up to A$3.5 billion as it reported a 51% slump in first half earnings and booked A$1.04 billion in provisions,due to the coronavirus pandemic and customer compensation.
Australia's third-largest lender slashed its interim dividend as it also said it would increase forward-looking provisions to more than A$2 billion to bolster its cash position and guard against a hit to business from the outbreak. NAB surprised the market with the announcement, giving just a few minutes notice that it was bringing its earnings report forward from its scheduled May 7 date.
NAB said provisions made to offset a hit to business from the coronavirus, as well as to compensate customers after a series of missteps last year, led cash earnings to slump 51.4% to A$1.44 billion ($919.73 million).
The lender cut its dividend by 64% to 30 cents per share, following a nudge from the Australian Prudential Regulation Authority for banks to reduce or defer dividends and conserve cash amid virus-generated uncertainty.
"We are taking decisive action to manage the rapid and unprecedented upheaval caused by COVID-19 while at the same time being clear about our long term strategy for NAB," Chief Executive Ross McEwan said.
The bank planned to raise A$3 billion in a discounted share placement and about A$500 million through a share purchase plan.
Taste of things to come, what the betting that all of the Aust banks big and small will follow ?
I find this quite interesting. I generally don't worry about Aussie banks, no franking credits etc, but based on the above they may all be seeking over $10 billion. Where will it come from when credit risks for clients are increasing and dividends are reducing. Sure, share prices seem to have dropped significantly so room for growth but still 10 billion is a lot
NAB divident cut and capital raising where flagged by Morgan Stanley back in December, I don't recall the exact amount for dividends but the capital raising looks close to what was forecast. NAB is the least efficient of the big four Australasian banks by many metrics, I suspect that Ross McEwan was hired from RBS for that reason.
The entire industry will need to make cuts. Lending margins will be far lower in the future, credit growth slowed for a couple of years and NPLs will blow out. Luckily large banks tend to have a lot they can cut without touching revenue generating operations.
Aussie super funds have a lot of bank shares and won't take kindly to seeing their investments being diluted, or alternatively, stuck for capital. I'm picking that there's a lot of cash prepared to subscribe for cut-price bank shares if there's anything left over from the expected capital raisings.
Some Aussie banks now trading at quite a big discount to NTA, e.g. :-
Bank of Queensland BOQ $4.63, last reported NTA $7.26 = 64% of NTA
Bendigo Bank BEN $5.69, last reported NTA $8.10 = 70% of NTA
ANZ $15.65, last reported NTA $19.59 = 80% of NTA
We know banks do not do well in a recession but HGH is currently trading at 107% of NTA - Something to ponder, is that warranted in the circumstances ?
half a billion in extra software amortization for NAB this half. but even including that they still only 'charged' a similar amount against earnings to last half and yet the profit is down a lot.
For an insight into why Barramundi have increased their weighting of Australian banks, see Pennypicker's post on the BRM thread.
BNZ increases profit 6 months to March to $562 Million up 6% on a year ago, even as NZ economy hit by Covad crisis & lockdown. (While it's Aussie parent, NAB halved it's profit)
https://www.rnz.co.nz/news/business/...onths-to-march
Re all bank stocks incl HGH
I am struggling to understand how the direct losses have been incurred from Covid 19 already.
Provisions get made and they are best estimates etc but surely the amount of actual definite losses at this point is SFA
Yes, they're provisions based on estimates of the effect on the economy and the overall creditworthiness of their lending portfolio. The provisions may prove to be excessive, adequate or inadequate but in previous instances its sometimes been an opportunity to clear the decks and err on the side of caution, ie over rather than under-provide.
I am surprised to read Sir John Key say in the Herald today that the Government has banned banks to lend to both commercial property and agriculture, under the business loan guarantee scheme. It seems very odd to include agriculture in this !
[QUOTE=bull....;811834]there all trying to get farmers to reduce debt , its a big risk for banks and govt if ag rolls over.[/QUOTE
What scenario would that be likely ?
In my view Reserve Banks should actually be imploring Commercial Banks and other listed companies to pay dividends if they can. Paying a steady dividend is good counter-cyclical behaviour, people purchased bank shares because they required continuity of income and banks where run accordingly.
sure no one wants a bank to go under and I guess most shareholders relying on shares for income have an alternative way to fund their lives, but this doesn't sit well with all the statements out there about strength and resilience.
I find the banks accounts a bit overwhelming to analyse however it would appear to me that while there are big provisions either already or imminent the ones we've seen aren't as huge as you'd think they might be which , along with other evidence (some factual some not) says to me that there is none or very little risk of Australian banks going under , provided of course that the post covid19 world goes vaguely according to plan . Naturally their profits will be constrained by impairments and bad debts but they will also be increased in the medium to long term by more lending over a longer time frame as folks struggle to claw their way out of debt.
Regulators are already going easy , Orr has relaxed his increased capital requirement time frame
Rant about BNZ.
Tried to bank a cheque yesterday. Went to a BNZ smart ATM and with gloves on entered all relevant details and inserted cheque. Machine rejected cheque and spat it back to me. There was a notice that said there was a limit on the dollar amount that could be deposited through a smart ATM but no notice of what that amount was ?
Drove to another BNZ smart ATM thinking it might be different, obviously a waste of time in highsight. Came home and searched on their website for ages, no detail of the limitations are on their website. By this stage I have invested over an hour in this process plus travelling costs. Rang their 0800 number and sat in a queue of more than half an hour only to be cut off. Got back in the queue and about 15-20 minutes later when they finally answered I was told no cheques over $2,000 can be deposited through a smart ATM. Asked why, they said new money laundering rules under Covid 19. Anti money laundering legislation only applies to transactions over $10,000 I told him. He could not explain why the limit wasnow $2,000. Asked how I can deposit the cheque he suggested going to my nearest branch which is open one day a week for just 4 hours. When I suggested there's likely to be a very long queue, (which there most certainly was when I just tried that half an hour ago), probably a 2 hour queue which is what it looked like) all he could do was suggest if you don't need the money wait until lock down 2 protocols when there might be more branches open.
When asked why the BNZ have moved from 2 days cheque clearance to 4 days late last year and now 6 working days which seems completely absurd he could offer no explanation.
BNZ says all over their website they are here for Kiwi's during the lockdown. I would say that's just a public relations bull ****. There is no reason they couldn't open branches more often now with 2 meter distancing protocols. They are after all an essential service. Unless I want to stand in a long queue for several hours I will have to wait for 11 May to bank this cheque and a further 6 working days for it to clear. Before anyone suggests asking for payment by internet banking this client is very old school and doesn't do internet banking. All up I am an least 2.5 hours of time down a rathole with this already and have got nowhere. Thanks for nothing BNZ, your "service" standards and information available on your website and call centre wait times are truly appalling and pathetic. What an absolute shambles.
End of Rant.
Epilogue (I suppose I should be glad I am plenty solvent enough to wait until what will be late May by the time the cheque is cleared) to have this honoured and I know the client well enough that it is highly likely to be honoured. I can't help wondering how less solvent people are getting on...
But does anyone know what that is? Meanwhile, banks are following their regulators' directions in conserving capital.Quote:
provided of course that the post covid19 world goes vaguely according to plan .
Disc: Holding ANZ and WBC.
Yes, good to get that off your chest, Beagle!Quote:
What an absolute shambles. End of Rant.
Banks are very sensitive about such matters since the CBA's ATM debacle last year. No excuse for sending a customer all over town on a false scent, though.:(
how does AML even apply to cheques , they are fully traceable instruments these days , no negotiability at all!
obviously one of Beagles clients.
I made a comment at a branch recently and the teller said there are still lots of cheques going through, though even NZ Post is going to reject them soon.
So ANZ has made a bout 2 B of provisions related to Covid19 factors , though almost half of that was related to writedowns on assoc subsidiaries. No dividend for now but they will reconsider and I note the CFO comments at the end
"We’ve also looked at a range of more severe stress scenarios; including a more extreme scenario that might arise from an economy-wide shut down for a full 6 months, and a 24% fall in GDP.
This would take us further into management and regulatory capital buffers, and would therefore take more time for us to rebuild to unquestionably strong. While this scenario is becoming increasingly unlikely given the way that Australia and New Zealand have managed the COVID 19 crisis it’s these uncertainties that have influenced our announcement to defer the decision on the dividend"
Like many they're just hanging onto it for good measure.
Older people who don't want to do internet banking. They are the generation that the banks don't seem to care about and are happy to expect them to stand in a queue for hours even though many have blood circulation issues and really struggle to stand for hours on end. Its an absolute disgrace.
Surely Beagle, that time you've wasted on this and the associated frustration is enough to push you over the edge and...start using Internet banking? Covid19 is going to be a catalyst for change for a lot of businesses and people, and this would be one example. You're not that old and you're doggedly proficient with a keyboard. But yeah, I hate it when I need to talk to the bank these days. Kiwibank for me...they used to be very good at answering the phone in a timely manner, but in the last year or two it's been terrible.
All he was trying to do was bank a cheque which was under $10,000,but the ATM would not do the business as it was over $2,000.
Bank has wasted his time.
Bank had no good reason why the ATM would not accept the cheque.Cheque would have the drawer's details, and Beagle would have had to put it into his account.
Traceability was all there.
Government to lend money directly to SMEs. What could possibly go wrong with government making credit decisions and managing loans to private enterprises? :mellow:
Apologies, this article contains a link to the legislation.
"While both Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr have urged banks to lend courageously to businesses under this scheme (the Business Finance Guarantee Scheme, through which taxpayers are underwriting 80% of individual bank loans to eligible SMEs), banks will ultimately lend according to their own criteria and within their own risk appetites."
"Banks can also only lend to businesses under the scheme if those businesses have exhausted other options with their banks."
If those quotes are right, then no wonder the banks are hesitant to lend to small business. Banks are still expected to lend according to their own risk appetites (understandable). But the 'Business Finance Guarantee Scheme' will only kick in if all other finance options have been turned down. So the finance scheme can only be offered to those deals the bank has rejected. And since the bank has rejected such loans, they won't be happy with taking a 20% risk in a loan they have determined is no good. That means the 'Business Finance Guarantee Scheme' cannot work - no loan can qualify. Or have I got that wrong?
SNOOPY
Seems reasonable. It's quite alarming to me this is even being considered.
I'm of the view that stimulating demand will ultimately save businesses and the best way to do that is injecting cash into consumers accounts.
What will a change of Govt do to these ?
- turn them into taxable grants (as the loans should have been in first place) perhaps spread over forward years ?
- make them interest free for 5 years perhaps ?
I really cant see many businesses on the bones of it's ar*e taking these loans up being in any position to repay
these fully any time in the next 2-3 years, unless they get a really really good tail wind...
What will a change of Govt do to these ?
- turn them into taxable grants (as the loans should have been in first place) perhaps spread over forward years ?
- make them interest free for 5 years perhaps ?
I really cant see many businesses on the bones of it's ar*e taking these loans up being in any position to repay
these fully any time in the next 2-3 years, unless they get a really really good tail wind...
As per usual, the Labor Govt still haven't thought things through to ensure these are 'working for intended purpose'
- What use is throwing a Govt Loan to a Business already sitting on the edge fighting to claw back ?
- What use is increasing Small Asset write-off limits to bulk of businesses who wont be in position to buy those assets up to $5k ?
- What use is tinkering with winding 2021 losses backwards - when most businesses wont have prior year profits undistributed
(as shareholder salaries) subject to tax to see any prior year tax refund ?
Most Businesses need Cash to pay Overheads etc, not an additional hefty repayable Loan Exposure & particularly not to Robertson & Nash's Department of Taxation ..
On another score - what has Nash actually done (if anything) for SME's & Small Business - he is the Minister for Small Business I believe
and appears to be mostly lost in action ..
There are probably loans that could qualify, but whether they are a meaningful proportion of lending is a different issue, and my gut feeling is that the potentially eligible market isn't anywhere near the scheme's ceiling.
If you had clarity that a borrower had a 75% chance of replaying the loan and was to pay a 10% margin (assuming for simplicity a 1-year loan with one payment at the end of the loan), the loan should be declined by normal bank processes. The payoff's are 1.1 * 75% + 0 * 30%. At 0.825 this is less than 1 and a bad risk to take on. The bank might lend on this if they were only exposed to 20% of the losses. The payoff's would become 1.1 * 75% + 0.8 * 25% = 1.025. With the guarantee the loan now has an expected margin of 2.5%.
Even here, the loan is still risky because you don't know how many hurdles the government of the day is going to impose to collect on the guarantee. Is this about to set up a scenario similar to the pending court case between EQC and Tower? If the loan above's true probably of repayment was lower than 66.7% it still doesn't make sense. If the loan is anything close to the $500k ceiling, what is the risk profile if more bridging money is need before normal operations generate sufficient cashflow to repay loans? What if the customer is not in default but extensions mean the loan hasn't repaid within 3 years? What are the additional losses on existing loans if your recovery specialists are now focusing on ticking any government boxes on these loans?
I'm reminded of Frédéric Bastiats parable about broken windows where he illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.
We are lending a lot of money to a lot of people to fix windows I suppose because...well we have to feel like we are doing something, don't we?
Quote:
"Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end – To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
But Govt set the scene for those windows to get broken in the first place, through their tardiness in doing very little through January through best part of February, intently watching the distant horizon & many would guess sitting with heads in sand saying for weeks 'this wont happen to NZ' ...
So why shouldn't Govt just be paying up for all those broken windows to get fixed & forget all thoughts of some further dumb ill-conceived Loan Scheme (probably only to give another large bunch Public Sector papershufflers further jobs for the next 5 years) and of which will likely only cause further grief down the track ? ;)
After all many Employees of affected employers sort of got a non repayable Loan didn't they ? Are the other bundle who got saddled by Govt with the privilege paying out 100% of subsidy received to workers for 'stay in the job but at home twiddling your fingers purposes because Govt decrees you must' any different ?
money supply in the USA apparenty greater in this last month than in all of 2008-09 and due to increase farther. DR Siegel say inflation will turn up due to the vast increase... how ever that hasnt happen in japan.. so we will see...different population dynamics and low oil will have an effect eventually.. there may be no way they can avoid another bull market that will over shot like the last one...another cycle of boom and bust but this time even faster and higher than the last one? history repeats its self. In 5 years time you wont even remember this 12 month period...
Know somebody who sacked an employee yesterday because the employee said because the subsidy was his and he didn’t have to work
Told him on your bike son and I’ll repay the balance of ‘your’ subsidy to the government ..,,and hope the dole queue is not too long.
Let's not forget that the "Govt just be paying up" is really the taxpayers of NZ, current and future, paying for these broken windows! As for who's responsible for breaking them in the first place, I wouldn't hazard a guess at this early stage of the inquest!Quote:
So why shouldn't Govt just be paying up for all those broken windows to get fixed & forget all thoughts of some further dumb ill-conceived Loan Scheme (probably only to give another large bunch Public Sector papershufflers further jobs for the next 5 years) and of which will likely only cause further grief down the track ?
Would the alternative course of action have been any better for SMEs overall?
Update: It looks like MPs passed the wrong legislation because they didn't read it before rubber stamping it.
What a shambles. I actually thought the COL were doing pretty well with dealing with this covid thing, given the immense pressure and timelines they've been under, but now I'm getting really concerned about the constant lolly scrambles consisting of billions in loans etc that we'll likely never get back, while all the good hardworking people out there spend the rest of their lives paying it back in the form of tax. Whatever happened to the days when poorly run businesses were allowed to fail when there was an economic crisis? In a lot of instances, we're just putting off the inevitable anyway.
No1 daughter's employer has just suffered a mental breakdown.
Cause.Worry about her business surviving.Still can not open under level 3.
There will be thousands of small business owners worrying themselves sick.
Not only the employers,but all their staff.
In a couple of years time we may be able to look back, and see in hindsight, what the correct course of attention would have been.
At present time it is a dark trip into the unknown.
the real problem is most MP's dont know one end of a balance sheet from the PL to the equity from the liabilities to the assets... and reserve banks dont really want to put money directly into bank accounts.. but you dont want complete destruction of the system due to a virus... they have no choice but to just move fast and apply a very limited set of parameters and clean the mess up later. The internal systems cannot be changed over night to cater for something that happened this fast. Its a case of just move the credit out there. As it is the destruction will be huge in NZ. But stock markets like the USA are already looking thorough the destruction due to the amount of credit being extende is greater in ONE month apparently than 2 years worth under the GFC. My simple book keeping and transaction knowledge does not extend to reserve bank systems.
Yeah, banks realised that but the government where not happy as they wanted to do something - or anything.
Will this help? It depends what you mean by "help". In 2008/9 providing liquidity to banks worked because what we where facing was predominantly a liquidity crisis. However this is more of a traditional recession scenario where cashflow and ultimately solvency tend to be the limiting factor for business survival.
I'm hesitant to say that however because I'm not sure Grant Robertson would flinch at the idea of fully subsidising businesses cashflow at this point. I suspect a lot of this is aimed at being able to point at having "done something" come the next election and hoping people don't look too hard at what has been done.
The article mentioned there were issues with the previous Business Finance Guarantee Scheme too
"But here’s the kicker - a line was slipped into the bottom of the release, saying the Government is no longer requiring banks to take security when issuing taxpayer-backed loans under the existing Business Finance Guarantee Scheme (which is distinct from the new scheme)."
"So it will be at banks’ discretion whether they take security for the $6.25 billion of loans they’re expected to give businesses, which taxpayers are 80% on the line for. No big deal!"
Looks like I was right. The original terms of the first announced 'Business Finance Guarantee Scheme' were unworkable.
SNOOPY
'
You nailed it there ...
3-4 years with the current mob & they will have pulled off the classic massive dubious trick of reducing a stable reasonably economy into a broken *** heavily indebted shambles, with many businesses in sectors wondering if they will even be there tomorrow, wholesale unemployment and future generations likely to be left paying dearly for the current mob's tardiness, stupidity & incompetence.
There can be little doubt that things could have been managed very considerably better, with less carnage, disruption & cost across the board, and above all effective C19 management measures resulting in less infection & deaths..
All Kiwi's deserve to see considerably better than the current mob have managed to deliver up / orchestrate..
Aside from the Clark/Cullen fairweather dreaming along session - has any previous Labour lead Govt achieved such a feat so fast ?
I'm not sure what this discussion is doing in the "Bank stocks" thread but nevertheless, it's a bit harsh to blame today's situation on the present government. There's an international pandemic ranging, remember.
Rebuttal of this post belongs in the politics threads, I believe.
I put it in as I felt that having a new competitor(?) in the business banking space might weigh on peoples investment decisions. After all without peripheral concerns, like making sure loans will be repaid and are secured, this might leave traditional lenders at a disadvantage to Bank of IRD.
Seems fair to me. Wasn't that long ago we were discussing how loans 80% underwritten by the govt would be great for the likes of HGH. Maybe the likes of HGH didn't play ball proper, so the posts have now been removed. I'm not sure if that's a blessing or otherwise TBH.
ABC article on the recession threats facing Australian banks. See it here.
c,mon guys lets try and stay on track,
WBC have made about 1.5B of Covid 19 impairments
"In aggregate, COVID-19 related impairment charges were $1,581 million."
price has found support at $NZ16 today which seems to be holding very recently.
Note that WBC will not be including borrowers who have applied for deferral into their future stress testing!! ?