(There doesn't seem to be a thread for the banks, just "banks'n'fees" and "CBA vs NAB". Though the new search function is greatly reduced in function, maybe I just couldn't find it)

The banks took a fall today on the back of the US market drop, subprime debt a factor once again. ANZ and WBC continue to appear undervalued to their peers, particularly ANZ - it just doesn't seem to want to break through $29.50. Since the banking 'slump' in June the CBA and WBC have recovered well, notably CBA. ANZ and NAB flounder, tracking sideways. For NAB, fair enough, the 10% jump in April was overdone, but the ANZ confuses me. Over the last several weeks I have read several snippets in the AFR indicating that it is undervalued. Can any members shed some thoughts on its underperformance, and perceived value / future performance? I have bought in today at $29.15 and am considering taking a very overweight position in them.

Thoughts appreciated.

FYI, ABN Amro figures:
CBA: today's SP=$56.50, target SP=$56.07 => upside=-0.8% (P/E=17.6, yield=4.2%)
WBC: today's SP=,$26.47, target SP=$30.59 => upside=15.6% (P/E=15.0, yield=4.6%)
NAB: today's SP=$40.00, target SP=$42.39 => upside=6.0% (P/E=14.9, yield=4.3%)
ANZ: today's SP=$29.15, target SP=$34.05 => upside=16.8% (P/E=13.6, yield=4.5%)

Big Al.

Couple of reports I read have ANZ running up to $32----$34 ......I would agree with this ....They do not report again till towards end of year.....and then there is the new CEO ......not worried ...!!!

big al - there was a bit of a '4 pillars' discussion somewhere a year or 3 ago. I think it was in a westpac thread.

but it is time to reiterate the arguments, even though nothing is going to happen in an election year.

today's article in SMH reflects the position

http://www.smh.com.au/news/business/wer ... 65378.html

We're the bonsai of bank world
Danny John July 27, 2007

OUTGOING Westpac chief David Morgan has attacked the Federal Government's four pillars policy that prevents mergers between the big four banks, saying it resembles a "woolly mammoth" that should be returned to the frozen regulatory wastes where it came from.

The policy is designed to preserve competition between the major banks but Dr Morgan argued yesterday that the policy was a significant constraint on the expansion plans of the major domestic banks - Westpac, ANZ, Commonwealth and National Australia Bank .

Wholesale changes to the banking industry since 1997 and the emergence of global banking competitors, most of whom were now operating in Australia, meant the policy was out of date and should be abolished, Dr Morgan told a Trans-Tasman business circle lunch in Sydney.

"Set against banking consolidation worldwide and the globalisation of services, the policy is an anachronism, a woolly mammoth dug from the Siberian tundra and shipped still frozen to Australia as a structure for banking," he said.

The restrictive nature of four pillars also meant Australian banks would not feature in the "mega-merger deals", such as the proposed offer by the British bank Barclays for its Dutch counterpart ABN Amro that would create an $227 billion financial behemoth.

Such a deal would create a banking empire three times the size of all four Australian majors put together, which would have a sizeable presence in the local investment banking market given the presence of both Barclays and ABN-Amro here, Dr Morgan said.

Even without that happening, Westpac found itself competing against organisations 10 times its size, which, given the financial firepower its competitors were able to bring to bear, meant that the local banks were locked out of huge corporate takeover deals.

These included the $11 billion private equity bid for Qantas and BHP Billiton's successful $9 billion offer for WMC.

"One commentator summed it up well when he said that our big banks are being treated like bonsai trees," said Dr Morgan, who retires after eight years as Westpac's chief executive at the end of this year.

"Yes, we can perform well and last a long time but the artificial constraints stop us from expanding to our potential."

Dr Morgan has aligned himself with the chief executives and chairman of all the major banks, including St George, who believe the policy has outlasted its usefulness. However, neither the Coalition nor Labor have committed themselves to a major overhaul of its restrictions before this year's federal election.

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actually being small has allowed the local banks to be wallflowers on some of the recent mega-deals, which isn't suuch a bad thing. Nothing worse than trying to grow by buying the risky end of the market, such as getting into CDO rebundling (oops nearly typed re-bungling)

But it is a worry in that the 4 pillars keeps a big Aussie mega bank from emerging and does overlook the fact that HBOS has a market cap 4 x the total of our Big 4, and the Barclays/ABN Amro is 3x. With HBOS growing its presence through BankWest (160 new shopfronts to be esablished in the Eastern states) we are well banked. The era of bank closures seems to have stopped, ANZ have opened 80 branches, their ads say.

Everyone says"something's got to give' but so far nothing has.

B.

Restrictions can often force creative alternative strategies to get around a problem.
If CBA is prevented from merging with any of the other big four banks then I think the following makes a lot of sense.

For some time I have believed Commsec has been a big money earner for CBA and is likely to get bigger as long as they can keep up with the opposition.
I believe their level of service/info is extensive and compares with other providers. In my view any improvement in services will attract more customers hence income.

The following is an extract from Intersuisse Morning Notes Thursday, 2 August 2007

"Commonwealth Bank of Australia (CBA) said it agreed to buy
financial services company IWL for about $373m, or $6.57 a
share, less any dividend paid by IWL for the year ended June
30, to build its broking business. The acquisition is to be
implemented by way of a scheme of arrangement under which
IWL shareholders will receive the payment wholly in cash or
through CBA shares to an equivalent value, the companies
said in a joint statement. IWL's board has unanimously
recommended the offer in the absence of a superior bid and
subject to independent expert Lonergan Edwards &
Associates concluding that the scheme is in the best interests
of IWL investors, the statement said...."

WBC buys part of RAMS ...cheers eG

Westpac acquires RAMS franchise for $140m
Email Printer friendly version Normal font Large font October 2, 2007 - 9:23AM

Advertisement
AdvertisementWestpac Bank said it has reached agreement to acquire the RAMS Home Loans Group franchise distribution business for $140 million cash.

The business to be acquired includes the RAMS brand, franchise network and associated mortgage origination and servicing systems and contracts needed to run the distribution business.

Westpac is not acquiring the ASX listed RAMS Home Loans Group Ltd or its existing mortgage book.

"Acquiring this business extends our Australian distribution footprint and reach and dove-tails into Westpac's existing growth plans," Westpac's chief executive officer, David Morgan, said.

He said the acquisition will separate out RAMS franchise distribution business from its funding arm.

"The RAMS franchise model has proven to be successful and this transaction will allow it to continue," Mr Morgan said.

"This creates a sustainable future for franchisees and the RAMS brand.

"At the same time, the funding arrangements should provide support for the financing of RAMS existing mortgage book.

Westpac will provide up to $2 billion of financing to fund new business and to refinance a proportion of RAMS outstanding US XCP (extendible commercial paper) program at its expiry in the first quarter, 2008.

The sale of the brand and distribution business is subject to approval at a RAMS shareholder meeting planned for late November.

Westpac said the combination of funding and the agreement on the franchise distribution business for cash, made it attractive to RAMS shareholders.

"The RAMS franchise model has proven to be successful and this transaction will allow it to continue," Mr Morgan said.

RAMS, which listed in July, was a victim of the US sub-prime mortgage crisis that has afflicted global equity markets.

While the non-bank lender had no direct link to the troubled sub-prime sector, it revealed in August that exposure to volatile international credit markets would affect its financial performance in 2008.

It said last month that debt market turbulence could undermine its forecast $58.6 million net profit in fiscal 2008, compared to a 2006/07 pro-forma net profit of $43.5 million.

The 2007 result was up 49 per cent on the previous year and was consistent with prospectus forecast.

As a result of the transaction with Westpac, RAMS will remain a listed entity, continuing to service and amortise its existing loan book and all new business settled up to and including November 15, 2007.

RAMS chief executive officer Greg Kolivos will be retained by Westpac to oversee the transition, and said that existing staff would either move to Westpac with the sale or be retained by the company.

RAMS said that, apart from the change of name, there would be no changes for existing customers arising from the restructuring.

AAP

As was looking likely, the Aussie banks have come out of the recent sub prime mess in OK shape - Moody's have put out a report to this effect:

_____________________________________________

"The global credit crunch has not damaged the stable ratings outlook for Australian banks, although smaller lenders relying on securitisation funding will suffer, a Moody's report says.

Moody's has maintained its stable outlook for the banks since the credit crunch began despite their relatively heavy reliance on wholesale funding, Moody's senior vice president Patrick Winsbury said.

"This is due to the banks' successful adaptation to challenging market conditions, having increased their liquid assets and raised funds opportunistically to adjust their balance sheets," Mr Winsbury said.

By contrast, small, securitisation-dependent institutions may have to reduce their volume of new business if securitisation costs cannot be passed on to their customers, he said.

The Moody's report warns the cost-effectiveness of securitisation to fund lower-risk/lower-return type products may be substantially reduced.

Unless such small, securitisation-dependent institutions can successfully re-orient their business models, they risk seeing their franchises and earnings eroded, it said.

The retreat could potentially affect their bank financial strength ratings, it said.

Meanwhile, the impact of the crisis on Australian banks has been well contained because they have not engaged in high-risk mortgage lending practices, the report said.

Delinquency rates are likely to rise but that result is off a very low base.

Australian banks have almost no exposure to US sub-prime mortgages or leveraged loans.

Mr Winsbury said some larger banks are providing liquidity support to asset-backed commercial paper (ABCP) programs.

But the financial impact of such lending was manageable due to the banks' solid profitability and capitalisation, he said.

As well, there were no material credit concerns for the banks because the assets were funded by high quality conduits.

The report noted Australian banks' New Zealand subsidiaries are similarly isolated from many of the sub-prime-related issues.

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It would seem that by not being international, big, or feeling as if they have to 'compete on the world stage' has protected the Aust banks from excessive yield chasing and susequent dramas. Lots of the investment banks that have the huge client bases chasing the best deal and ultimately having little loyalty, apart from the latest returns, have got themselves into trouble.

I suppose this is one argument for maintaining 4 pillars, in some perverse way.

B.

market size of relevant players: 07 Dec 2007

CBA $81.3Bill
NAB $65.9Bill
ANZ $54.1Bill
WBC $53.9Bill
and the demi-semipillar SGB is $20.5Bill

Hardly a symetric balanced structure.

Doesn't seem to be too many issues with the BIG Banks, if commercial lending is looked at. Banks' shareprices are down on credit spread fears and resulting cost of capital & thus impact on bottom line, but the sector is healthy. The negativism about 2008 may be too pervasive. Aust economy is clicking along. And the lesson should be that the more robust will come out of any downturn the better.


http://business.smh.com.au/local-banks- ... -1jof.html

LENDING by Australian banks to businesses and the corporate sector is continuing to power ahead following the global liquidity crunch that prompted a "flight to quality" by domestic borrowers, according to figures compiled by the banking regulator.

Industry statistics released yesterday show business lending across the sector grew by 2.3 per cent in November, reflecting the sustained growth witnessed halfway through last year after the effect of the US subprime loans crisis on international credit markets.

The biggest beneficiaries of the switch by companies from global to domestic sources of lending have been the big four banks - Commonwealth, National Australia Bank, ANZ and Westpac - whose growth in terms of market share have shot up from low points of between 0 and 6 per cent seven months ago.

According to the Australian Prudential Regulation Authority, their annual growth to the end of November were tracking at rates of between 14.5 per cent (NAB) and 18.4 per cent (Westpac) with the Commonwealth and ANZ in the middle of the pair.

November was not a good month for NAB on the business front as fierce competition saw it fall well behind its major rivals and the rest of the industry with its growth going into reverse. ANZ and the Commonwealth profited at NAB's expense.

NAB, though, continues to be the dominant business bank amongst its major peers with an overall annual market share of nearly 23 per cent while ANZ has turned round a slow decline over the past 12 months to reassert its position in second place with 17 per cent of the total.

The authority's figures for total lending in November - including corporate, housing, personal loans and credit cards - underlined the strength of the domestic economy with the whole of the banking sector showing an average monthly increase of 2.8 per cent.

Total lending over the 12 months from November 2006 is up across the industry by 17 per cent.

ANZ has been the biggest winner over that period, matching the sector's average growth and reclaiming the spot of the third-largest lender in market share terms after a fierce tussle with Westpac.

Commonwealth has beaten off NAB for first place after an equally tight battle last year with a 20.5 per cent share compared to its rival's 19.8 per cent rating.

END

as written about in the Interest rates thread in Economy:

interest-rates-1385-60.html (18 Dec and 29 Dec)


NAB leads charge to lift lending rates - Scott Murdoch | January 04, 2008


TWO of Australia's biggest banks are to defy political pressure and raise interest rates for tens of thousands of homeowners.

National Australia Bank will today add 0.12 per cent to its standard variable home loan, independent of any move by the Reserve Bank.

The increase will take the bank's standard variable lending rate to 8.69 per cent. Business loans will be increased from Monday.

Its rival ANZ is likely to move next week, and analysts believe homeowners should prepare for a rush of rate rises from all major banks.

The banks were last year pressured by the Coalition and are facing demands from the Rudd Government not to punish homeowners because of the sub-prime crisis in the US.

The defiance shown by the banks is one of the first challenges faced by Wayne Swan, who said families were already under significant financial stress.

"While this rise in variable mortgage rates is a direct result of the US sub-prime crisis, I would urge Australian banks and other financial institutions to be very mindful of the significant financial pressures on families when making decisions on these matters," the Treasurer said.

The controversial shift by NAB will add nearly $20 a month to the cost of an average home loan of $200,000.

It comes as petrol prices are set to soar, which in turn is likely to further fuel inflation. The price of oil has for the first time reached the $US100 ($113) a barrel mark, with forecasts of prices at the bowser hitting at least $1.50 a litre in the next fortnight.

The global credit crunch has made the cost of money more expensive, with the banks arguing their billion-dollar profit margins are being squeezed.

The Reserve Bank next meets on February 5 and financial markets predict official interest rates could rise another 25 basis points to 7 per cent.

About 80 per cent of Australian mortgages are on a variable rate, while the two banks have lent $224.5 billion to consumers to buy housing.

Opposition Treasury spokesman Malcolm Turnbull said Australia did not have a sub-prime crisis, but had been caught up in fallout from the crisis that had threatened to bring the US housing market to its knees.

"The banks have to be very careful and people should be very careful to ensure that rates have to be adjusted down if wholesale funding costs come down," Mr Turnbull said.

"Peter Costello (as treasurer) was able to use moral pressure to encourage the banks not to put up rates."

NAB will increase the rates on business loans by 0.15 per cent from Monday, and loans through its Homeside subsidiary will rise by 0.12 per cent.

The shift follows a stampede of hikes on fixed-rate loans and credit cards by the major banks.

The decision by NAB, Australia's second-largest bank behind the Commonwealth Bank, was made after an internal meeting of executives yesterday.

A spokeswoman for NAB said the move was ordered to enable the bank to cover the higher costs it has faced since the sub-prime crisis broke in August.

"In the past five months, wholesale funding costs have increased, there's been a sustained increase," she said. "These changes are not going to recoup the full impact.

"We have to make a business decision, we have a responsibility to our customers and shareholders ... we have investors who are mum and dad shareholders and superannuation funds."

ANZ spokesman Paul Edwards said all Australian banks were under pressure as a result of the financial market shake-ups. It is understood ANZ bosses will meet next week and are likely to follow the shift by NAB.

"The pressures ... in the wholesale markets that were there in 2007 are still there at the start of this year," Mr Edwards said. "We will have to make a decision soon."

Dennis Orrock, the managing director of mortgage research group InfoChoice, said the NAB decision was likely to prompt all major banks to raise their lending rates.

Economists have said a shift by the banks could reduce the likelihood of the RBA raising rates again, but the increase from NAB was seen as not enough to stop the central bank.

"Now one of the major banks has lifted rates, the others will follow," Mr Orrock said.

"It might take a week, but they were waiting for one to go. The hardest thing for the banks is that when they say funding costs have gone up and margins are being compressed, the man on the street, year in, year out, is seeing record profits."

http://www.theaustralian.news.com.au/st ... 01,00.html

11/01/2008 Know which bank has the greatest exposure to CNP ...cheers eG

ANZ, with some $500 million in unsecured loans to Centro, has the biggest unsecured exposure of the Australian banks.

Its loans to the group total about $1.2 billion, roughly the same as CBA, but the latter has just $300 million in unsecured loans. NAB has $1.1 billion in total loans, of which $350 million is unsecured

Bankers count cost of Centro going brokeFont Size: John Durie | January 11, 2008
THE big three Australian lenders to the fallen Centro property group have hired insolvency group McGrath Nichol to prepare an investigating accountants' report on the company.

The move to hire the firm highlights the banks' concerns about Centro and just what plans are being made to save the company.

ANZ, with some $500 million in unsecured loans to Centro, has the biggest unsecured exposure of the Australian banks.

Its loans to the group total about $1.2 billion, roughly the same as CBA, but the latter has just $300 million in unsecured loans. NAB has $1.1 billion in total loans, of which $350 million is unsecured.

Colin Nichol is leading the work on behalf of the banks, but it is too early to say just what action they will take. It seems, at this stage, they simply want to know where they stand, which is no easy matter, given the complicated Centro corporate structure.

This structure also makes life difficult for the board in trying to sell bits and pieces.

Consider the entity known as CAWF, the domestic wholesale fund, which has $2.6 billion in assets, $900 million in debt (including some CBA money) and is half-owned owned by Centro and half-owned by its 51 per cent-owned DPF.

Now if someone wanted to unravel that and lodge a bid for the assets, CBA might just be waiting at the door to get its money back.

Plans to recapitalise the entire company are a fine alternative, but arguably too late. Getting the right level of disclosure and guarantees, now the company is trading again and the debacle open for all to see, will be tough.

Maybe this explains why the stock took another dive yesterday, down 22.5 per cent to 86c a share on huge retail-led turnover.

The selloff has really hit the banks; some are saying it has been excessive,,,,

I don't know, but I would rather be a buyer than a seller for a variety of reasons.

One basis for future solidity. "The driver seems to have been the credit crunch as corporate underwent a bit of "re-intermediation": an ugly word that means corporates went back to their banks for money after winding up loans from other sources. " And at a higher rate of spreads, as a rule. Business lending is kicking along at a right old rate of knots

Another: housing hasn't dried up. Sure there is stress, but no 'blood in the streets'. Even Centro looks like it may be unwound in an orderly fashion. You can bet the major lenders are in there at the front of the queue.

CBA is the only major to announce in the coming season - the others have a different reporting cycle. From what I have seen, they may come in with ONLY a 10% increase, or 9 or 11, but under the 13% that may have been factored in prior. In some ways expected but in others, hardly a disaster.

Meantime the yields with their franking credits, sure look attractive.

.B

the New WBC will be bigger than CBA if they succeed in taking oveer (sorry, merging with) St George

this will leave ANZ a little isolated