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Thread: Bank stocks

  1. #11
    Advanced Member airedale's Avatar
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    So after yesterday's announcement will the banks pay a dividend to retail investors?

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    Quote Originally Posted by airedale View Post
    So after yesterday's announcement will the banks pay a dividend to retail investors?
    RBNZ says no sorry.

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    Quote Originally Posted by Scrunch View Post
    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.
    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.

  4. #14
    Advanced Member airedale's Avatar
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    If they suspend divi payments then ANZ should re test its recent lows of NZ$ 15. {or lower}

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    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 ?

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    Quote Originally Posted by ynot View Post
    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

  7. #17
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    Quote Originally Posted by ynot View Post
    nzx Ausi banks: Are they starting to look reasonably priced all things considered ?
    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
    Last edited by Snoopy; 11-04-2020 at 08:02 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

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    Quote Originally Posted by Snoopy View Post
    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

  9. #19
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    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".

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    Quote Originally Posted by traineeinvestor View Post
    Thanks for the above reference

    Quote Originally Posted by traineeinvestor View Post
    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.
    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!

    Quote Originally Posted by traineeinvestor View Post
    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 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
    Last edited by Snoopy; 11-04-2020 at 08:52 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

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