Banks 1, Murray nil. Even before we get the Abbott government’s decisions on what it will do with the report from the Murray inquiry into the financial system (mostly ignore as too hard, judging by the way other reviews have been treated). But this morning, APRA, the lead bank regulator, gave the big banks a big win on their lobbying against the Murray proposal to force the banks to hold more capital to match offshore levels. In a paper issued early this morning, APRA said it “does not intend to tightly tie Australian capital adequacy requirements to a continually moving international benchmark”. Murray’s first recommendation was that for our banks to be regarded as “unquestionably strong” they should have capital ratios that position them in the top quartile of internationally active banks. But APRA said this morning it “regards the top quartile positioning as a useful ‘sense check’ of the strength of the Australian framework,” but nothing more.
Banks will have to make some allowances as APRA moves to force them to hold more capital against various classes of assets (including home mortgages), but nowhere near as much as what Murray was suggesting. The bonuses and other rewards for management will be safer, and returns on equity won’t be all that disturbed and shareholders will be happy. The big four banks have already started building their capital reserves by selling assets. Soon we will get branch closures and job losses. Keep an eye on the housing boom. — Glenn Dyer
Housing boom is tiring. Friday’s housing finance figures from the Bureau of Statistics should sound a big alarm bell for banks and their investors, as well as for others in the housing sector (not to mention the indolent federal government). The total number of home loan approvals fell 6.1% in May from April (double the 3% fall forecast by economists) and a clear sign the crack down on investor-lending is starting to have an impact. It was the largest fall since January 2010.
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The value of loans to owner-occupiers slumped 5.3%, jumping by an upwardly revised 3.5%t a month before. The value of loans to investors fell 3.2%, month-on-month, after an upwardly revised 3% rise in April. Now, one month’s data doesn’t mean a trend, and we should wait for a while longer. But looking at the details of May’s figures, you find that the total number of finance approvals was down on May 2014 — the first time this has happened in 2015. Loans to buy established homes fell 1%, loans to finance the purchase of new homes were up slightly, but loans approved to finance the construction of new homes were down around 10% (and if this continues, this will be a real concern for the wider economy as this is one of the few areas of solid investment in the economy). If this rate of fall continues for the next few months, then the chances of a recession in 2016 will rise because there is nothing else supporting the economy at the moment. Don’t expect this government or federal Treasury to cotton on to this until it’s too late. They are just too partisan, too blinkered. — Glenn Dyer
Greece, is anyone interested? Greece reckons it needs more than A$120 billion in a third bailout. It might be all academic if the European Central Bank doesn’t turn on the cash tap for Greek banks later today. So don’t worry if markets blip and flip — it’s the eurozone theatre of the financially absurd, and we all have front-row seats. A well-known Sydney art dealer who is just home from a holiday in Greece says that for cash you can get a 20% discount in the biggest and best restaurants on Santorini — one of the tourist meccas of the eastern Mediterranean. Yes, they are still taking cards, but the preference was cash. Old habits die hard, and that’s what the rest of the eurozone, and especially the Germans, can’t overcome. — Glenn Dyer
Yes, China is hurting. Quite a bit of rubbish is being written and spoken about the lack of any impact on Australia from the market rout in China in the past month. Just look at the way iron ore prices slumped and surged last week in reaction to the market instability, and the impact it had on share prices here. That rout was brought under control on Thursday and Friday by a desperate government, which now has its feared public security bureau probing “evil doers”. But what a lot of commentators fail to appreciate is that the slide in the markets and the potentially large losses come on top of a sluggish economy and still weak levels of confidence and activity in the property sector (which was the previous investment hot spot for individuals, all sorts of financiers and local and provincial governments). Already there are reports from Shanghai and several other big cities of fire sales of properties from investors wanting quick sales and cash. — Glenn Dyer