For those who forgot to mark their calendars, January 1 marked the official start date of the Liquidity Coverage Ratio, which will be fully phased-in by 2019. The LCR aims to reduce bank vulnerability to runs by requiring lenders to hold a certain proportion of safe, easy-to-sell assets to offset their short-term obligations.
The easiest way for a bank to satisfy this requirement is to buy government debt and hold reserves with the monetary authority. In the US, domestically-chartered commercial banks hold about $600 billion in US Treasury debt — a shade less than 6 per cent of the total held by the public (excluding the Fed), as well as $1.5 trillion in cash and reserves at the Fed. Add in the $1.4 trillion of MBS guaranteed by Fannie and Freddie, which for regulatory purposes counts as a liability of the US Treasury, and you have roughly 28 per cent of the total value of domestically-chartered bank assets held in the form of safe and liquid securities. Read more
We haven’t seen any commentary on this yet but the Australian yield curve has been flattening like a pancake this year:
Buried in the Reserve Bank of Australia’s most recent Financial Stability Review is a discussion of how Australian banks have heroically managed their costs over the past two decades.
The lessons could be useful to banks in the US and Europe, which are currently caught between regulators who (rightly) want lenders to stop threatening the financial system with excessive leverage and shareholders who yearn for a decent return on equity. Read more
A recent speech by Reserve Bank of Australia boss Glenn Stevens contained this striking chart:
Nothing has been decided yet, but it looks increasingly like BHP Billiton is going to spin off its unwanted smaller assets in a new company — effectively undoing
another dud mining industry deal what’s left of its 2001 merger with South Africa’s Billiton.
But lots of questions remain unanswered. Two stand out in particular: What does this mean for a share buyback and what will PLC shareholders get out of it? (Remember BHP is a dual-listed company with Ltd shares in Australia and PLC shares in the UK). Read more
Officially, Australia has avoided recession for more than two decades — an impressive achievement for a small open economy that has become increasingly dependent on exports of iron ore, copper, and coal as a source of growth. Many have attributed this track record to Australia’s fortunate position as one of China’s biggest commodity suppliers, while others have argued that the Reserve Bank of Australia deserves the credit. Australians should hope that their success is due to the skill of their policymakers, rather than luck, because the newest data suggest that Oz’s luck is beginning to change. Read more
The share price is down a fifth in 12 months. It’s cheaper than Lloyds (on price to tangible book), as a bank with Asia supposedly at its feet. The boardroom is a mess and last week’s “reorganisation” may not fend off an eventual cash call.
Still, after that excellent year for Standard Chartered — Citi’s analysts suggest it’s time for ANZ to buy it: Read more
From “noted” to gone in less than 2 months…
From Nomura’s Martin Whetton:
With just over a week before Australia was expected to hit its borrowing limit, the government reached a deal with the Green party in the Senate to abolish the Commonwealth debt ceiling, which is expected to pass Parliament sometime this week.
Noted simply because we didn’t know it existed before:
COMMONWEALTH INSCRIBED STOCK ACT 1911 – SECT 5
Limit on stock and securities on issue
(1) The total face value of stock and securities on issue under this Act and the Loans Securities Act 1919 at any time must not exceed $300 billion…
Politics has definitely been an element in the discussions around who will replace Ben Bernanke at the Fed. That’s probably putting it mildly. But we suspect even the US doesn’t have quite the partisan obsession Australia boasts.
Australia’s central bank cut its cash interest rate to 2.5 per cent today, a record low. Australians being a rather highly leveraged bunch, the RBA’s interest rate decisions are almost always reported with focus on the implications for mortgagees. And this cut happened to be made a few days after an election was called which, surprise surprise, is set to be tightly contested… Read more
Kevin Rudd 2.0 has been quick to highlight the dangers posed by slowing Chinese growth since he was returned as Australia’s prime minister.
For example: Read more
Another day, another Aussie GDP downgrade.
From BofA Merrill Lynch: Read more
That’s recession and the merest hint of the word sends Australian policymakers in to paroxysms of anger.
For example, here’s David Gruen (the Treasury’s chief macroeconomist) speaking before a Senate hearing last week.
From the Sydney Morning Herald: Read more
The pain goes on for the currency dubbed until recently the southern Swiss Franc…
We are, of course, talking about the Australian dollar — now going head to head with the Syrian pound for the title of the world’s worst performing currency.
The latest drop follows a call from Pimco of even lower interest rates. Read more
We are, of course, talking about iron ore which has slipped into bear market territory overnight (defined here as 20 per cent fall from a recent high).
Economists mostly failed to predict that the Reserve Bank of Australia would cut rates to a record low of 2.75 per cent at its monthly meeting today. Yep, lower than during the height of the financial crisis — another sign that we’re living in different times now. Read more
The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure. However, following the significant leveraging of the Australian & NZ households over the last thirty years they are now low growth and remain heavily exposed to housing, funding markets & unemployment risk. Read more
The biggest ASX fallers on Monday…
… all gold.
(yes, even PanAust)
Remember Australia’s inverted yield curve in 2012?
Australian authorities have been considering how to deal with algorithmic and high-speed trading since 2010. Long story short; the local Australian Financial Review says that the federal Treasury has decided that fees on high frequency trades orders are the way to go.
This prompted protests from the chief of Chi-X Australia, Peter Fowler, that market makers should be treated differently: Read more
Move over Gulf Keystone; there’s a new wannabe supermajor in town.
It’s a small Australian exploration and development company called Linc Energy – tagline ‘Fueling our Future’ – and according to some hysterical media reports down under it’s found oil worth $20 trillion. Read more
Time for some property porn.
It comes from the 2013 Demographia International Housing Affordability Survey – a piece of work often quoted by bubble hunters and rubbished by the property bulls who babble on about flawed methodology. Read more
The Reserve Bank of Australia cut its cash rate on Tuesday to 3 per cent — making a total of 175bps worth of cuts since November 2011, and bringing the rate to its lowest level since the depths of the financial crisis.
The RBA’s governor’s statement alluded to the bank’s discomfort over the stubbornly high Australian dollar, which is not doing what it tended to do in the past and falling to provide a fillip to the economy: Read more
That’s Australian for ‘bad’.
The country’s trade deficit came in far worse than expected: Read more
When commentators cast around for reasons to explain the strength of the Australian dollar in the face of falling iron ore and coal prices they all arrive at the same answer - haven bond buying by central banks/ sovereign wealth funds. In fact, we’ve also made that very point.
About that iron ore rally…
Forecasting is a tricky thing. The latest quarterly update from Australia’s Bureau of Resources and Energy Economics predicts iron ore prices will average A$101 a tonne in 2013: