What a bunch of bankers!

After the debacle of the last couple of day where the CBA blamed Merril Lynch, and Merril Lynch blamed CBA – CBA shares have slumped to a six-year low of 25.95 – a slump of 10.98% (as at 1130am).

Of course it is all the fault of Rudd and the government.

But which other banks are also hiding major losses and bad debts?

And we can take this thread as a general one on the economy. I think I read somewhere that it seems that Australia will not go into recession. Now this present the opposition with a conundrum if we do not go into recession – did sending the budget into deficit prevent the recession, or because we did not go into recession the budget should not have gone into deficit?

joni

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54 Responses

  1. CBA have got a bloody damned hide tryin’ to pin this on their advisers at Merrill Lynch (and I’m no apologist for Merrill Lynch that’s for sure). If the overpaid idiots at CBA cared to do their job properly they would sit down immediately and read the Listing Rules for the ASX.

    Hidden in the small type NOT is possibly the most important Listing Rule of them all that says it is upto the Listed Company to KEEP THE MARKET FULLY INFORMED of any material developments.

    It does not say you can fob this small requirement onto others to keep the market informed. It’s your own responsibility…………………………..Not……… Repeat Not……………. Merrill Lynch’s.

    Really …!.the number of stuff ups that our “Captains of Industry” have been responsible for in the last 2 years have just been breathtaking.

    Just goes to prove that a Grammar School education (which is where most of them come from) does not convey simple common sense let alone decency.

  2. But they will still get their bonuses, and us poor customers will pay more in fees to cover their mistakes.

    And CBA is one of the companies that are not renewing IT contractors left, right and centre – but get this, they are offering the contractors permanent positions! And when you do the sums, a contractor is about the same cost as a permie (after sick leav, holiday pay etc), but are much harder to get rid of in bad times.

    Really makes you think that they are doing too much “mutual banking” in the board rooms of Martin Place.

    I wonder if they play the “soggy CEO” game?

  3. Plus a major part of the problem with the Credit Markets at the moment is that no one trusts anybody anymore. Hence a lot of banks are refusing to lend to other banks because they don’t know what might pop up on the other bank’s balance sheet in the way of bad news.

    For CBA to think it can carry on with this Culture of Secrecy is just mind boggling.

    Markets hate surprises and these idiots down at Martin Place Sydney just don’t get it.

    God I’m so pissed off with the amount of money these numbskulls earn to NOT DO THEIR JOB.

  4. Why are we not surprised at this level of incompetence and mismanagement from our financial institutions, who are are being bailed out by us poor taxpayers whilst we are paying increased fees and charges for their stuff ups.

    What a lark.

    And now it turns out a third major US financial institution in Goldman Sachs is using the huge amounts of bailout money given to it for bonuses and rorts.

    When the dust settles down there should be some really heavy regulation of the financial institutions put in place with the highest priority on a strict reign in for pay and bonuses along with only being paid for performance.

  5. Why should they get performance bonuses in the first place???

    Are not their salaries big enough in the first place or do they get a retainer like car salesmen and real estate agents?

    In reality they have the same reputation now!

    If I was a shareholder in any of these “institutions” I was be pretty pissed off.

  6. Why should they get performance bonuses in the first place???5.

    scaper… | December 18, 2008 at 1:57 pm

    Which is exactly what Glen Stevens of the RBA is worried about. Some of these bonus schemes provide an incentive for CEOs to take risky decisions. Consequently APRA are looking at how prudential rules for banks might be tightened if they (APRA) judge a salary package to be an incentive to take on too much risk. Therefore such packages might really affect shareholders and consequently the share price therefore limiting the degree of risk attached to any incentive CBA could offer its dickhead execs

  7. Interesting. An opinion from the man in the street aka a Cairns taxi driver who was also missing most of his right arm. This Rudd fella, he’s sendin’ the country broke (numerous comments from the driver continued all the way to the airport). We were polite and nodded.

    Out of the taxi hubby couldn’t help himself (with due apologies to amputees). I thought that he’d be a left winger because he’s missing his right.

  8. 7. Min | December 18, 2008 at 3:52 pm

    You would not get that in Sydney…………………….!

    None of them speak English !

  9. 6. I Am The Walrus

    Problem is IATW we can’t regulate/control the Yanks…!

    My layperson’s take on the CBA…Merril Lynch debacle is that it was somewhat akin to insider trading and ML might have got cold feet…sharemarkets are open “somewhere” around the world 24 hours a day. If I had bought at $29 and then they opened at $27 the next day I’d be not only p#ssed off but bloody suspicious…

    …reminds me – must check my Metalstorm shares…

  10. *laugh* “left winger”, I love it… then again, I am constantly being told I’m an insensitive pri… er, guy.

    I’d say we are going to be hit by a recession, if somewhat less drastic than that suffered by the USA & company. Simply put, the demand for resources in China & other manufacturing heavy nations using us as a quarry causes a delay in the monetary problems reaching us.

    Contracts, delayed shipments, sheer hope, etc had China still buying our stuff even as the rest of the world slowed down buying theirs. As they slow down / stop buy our minerals, we’ll be hit by the same credit crisis the rest of the world is seeing. As CBA has proven, a “wunch of bankers” thinks the same in Oz as they do in the US.

    Hopefully the worst of the financial crisis will be over or at least peaking when the problem actually starts biting here, when the rest of the world’s funds will start flowing back through the mining companies’ accounts.

  11. Recession is inevitable, B.Tolputt…those that accept it will deal with it more easily than those that don’t…

  12. “If I was a shareholder in any of these “institutions” I was be pretty pissed off.”

    Indeed! But there is little or nothing the shareholders (and that includes virtually everyone with even a small amount of super) can do about it. The vast majority of Australians are shareholders in the Commonwealth Bank, albeit indirectly.

    Telstra is a classic example. The shareholders voted against a Board proposal that Silly Sol, the Mexican blow-in, receive an outrageous bonus. That’s right the shareholders rejected the Board’s recommendation. But to no avail, the Board proceeded anyway and the Board is still there.

    Now of course, Silly Sol has stuffed up big time re the national broadband project. Silly Sol should be sacked for incompetence but I suspect such an action would generate an enormous payout as compensation.

    The Chair of the Board, one Donald Mc Gauchie, was one of the leading lights in Reith’s waterfront dispute. At the time Our Don was Chair of the National Farmers Federation.

    He is truly one of the most arrogant creatures in Australia today. Sack him as well.

  13. Banks announcing up to 5000 workers to be sacked whilst the board members gave themselves a $500,000pa pay rise because of the hard work they are doing. Of course taxpayers money is giving them that pay rise.

  14. This is what I posted today on another thread.

    Just an update on my concerns of Telstra being excluded from the NBN process due to their arrogance…well, my fears could be realised.

    This whole process could be tied up in the courts for years and we will be the losers!

    http://www.theaustralian.news.com.au/story/0,25197,24819402-12377,00.html

  15. I am a complete non-knowledge person as far as economics goes and so reading these blogs and reading the links is a learning experience for me.

    Wasn’t there something a couple of weeks ago about capping executive payouts? Or was this just wishful thinking.

    To me Telstra was always going to be a nightmare (thank you the now defunt Democrats). A monopoly in a free market?? Does not compute, the other recent example of course being ABC.

  16. 12. Nature 5

    Great post!

    The fact that shareholders have no say in board decisions is one massive loophole that regulators MUST close…

    …why Rudd & Co allowed, JWH & TPSB, appointees to remain in positions of power in government and on committees and boards such as Telstra, still makes me wonder about hidden agendas and backroom deals…

    …if one was a conspiracy devotee, you could speculate that JWH had realised that the public were finally awake to the lying, cheating and deceitful power plays and (as he had done with Mal Turncoat in the Republic debate and as he had discussed transfer of power with Peter Custard) called Kevin Rudd and said, “…listen I, and the Robber Barons, have a plan…you can be PM if…”

    …just thinkin’ (as ABBA would say)

  17. Not sure TB, but I think that it’s more Rudd’s style to slip a non-performer out the back door quietly rather than try to make headlines.

    Interesting that so few people, especially journos are yet able to understand Rudd. It seems that ye olde ordinaries are, given his popularity rating.

  18. 17. Min

    Yep! Suspect you’re theory is closer ‘an mine!

    😆

  19. TB

    “The fact that shareholders have no say in board decisions is one massive loophole that regulators MUST close…”

    Indeed! But remember that much of the voting power lies in the hands of (our) super funds. To the best of my knowledge no member of a super fund has ever been consulted or ever voted as to how their reps on Boards should vote. That’s a problem but in this age of electronic communication, effective and non-expensive solutions are available. Maybe, super member votng should be part of the mix?

    Let ‘democracy’ flourish. Lol!

    “appointees to remain in positions of power in government and on committees and boards such as Telstra, still makes me wonder about hidden agendas and backroom deals”

    Rudd learnt a lesson in QLD with mass sackings. The backlash outweighs the gains. Besides Rudd is an anti-poitics politician. Not into an overt ideology.as well. The t we can hope for is that things will change over time.

    scaper:

    “This whole process could be tied up in the courts for years and we will be the losers!”

    Whlie anything is possible, your link to the Opposition Organ adds no weight to your argument. The journo gave more weight to a hypothetical that he did to Conroy’s assertion that the courts have already made judgements in this area.

  20. Argument???

    I have concerns that due to the mis-management of Telstra combined with the inept Minister for Communications (who incidently wants to sensor our access to internet content) will cause delay to the roll out of the network.

    Sheesh!

  21. scaper – you did say:

    “well, my fears could be realised.

    This whole process could be tied up in the courts for years and we will be the losers!”

    That’s a point of view or an ‘argument’. What else would you, or could you, call it? Nothing wrong with having a POV or advancing an argument. In fact, it makes the world go round.

    As for:

    “who incidently wants to sensor our access to internet content”

    Actually he wants to ‘censor’ it, and in that regard he has the approval of the majority of Australians. The fact that it is an impossible task and likely to slow speeds dramatically suggests that ‘democracy’, in the form of public opinion, has its problems.

  22. “This Rudd fella, he’s sendin’ the country broke (numerous comments from the driver continued all the way to the airport). We were polite and nodded.” Cairns taxi driver

    Dear Min

    I agree with the taxi driver

    Sincerely yours
    neil of Sydney

  23. Neil of Sydney

    I think you would make a very good taxi driver! As long as you realise your intellectual limitations. Lol!

    Now listen carefully. Take the next left driver.

  24. “sensor”

    Blame botox leakage.

  25. Neil@22 : A Taxi driver is simply that ‘a taxi driver’ most of the time. The easy answer is to blame the incumbent government.

    If he’s said ‘the NSW government has sent NSW broke’ he’d have a shit load of evidence to support his case. But the Rudd Government? They’re having to deal with fallout from the boom years which Howard and Costello championed.

    Take a look around Neil. We’re just not that well prepared as we should have been.

    Julie Bishop carries on with similar crud – here’s how I put it in the simplest terms possible. She’s never likely to get it, nor are you Neil (thank God for cut and pastes otherwise why would I even bother)

    Costello reforms help Australia weather financial storm

    Julie Bishop blogs exclusively for BusinessDay
    http://blogs.theage.com.au/business/archives/2008/10/costello_reforms_help_australia_weather_financial_storm.html?page=fullpage#comments

    On ‘All points West’ today’s question is: Is Australia’s economic miracle a mirage?

    My answer is simple yet my explanation more detailed.

    Mirage! was my answer and to quote Michael West:

    “The shape of the world economy has changed in the last 18 years. China has boomed.

    Although Australia’s GDP growth has historically tracked the US, this time we are in a particularly fortunate position of having a mining boom (although commodity prices have begun to come off sharply). And Government debt is not an issue.

    That said, Australia like the US is a current account deficit country (currently 6.2% of GDP) which means our banking system borrows from the rest of the world to support our lavish lifestyle.

    No longer can this country rely on a debt-funded spending spree to fuel a recovery. This is bad news for both the banks [business] and the consumer.”

    I know Howard and Costello laid claim to being the masters of the economy and interest rates but that is simply no longer a viable claim, and it never really was. They were simply riding a favourable economic wind.

    They were also front and center when it came to cheering Australian who took advantage of artificially low interest rates by taking on boatloads of debt. Nor did they monitor the lending practices of the financial sector, in spite, in spite of the obvious lending lunacy that was going on.

    Our banks assure us that we are in a stronger position than the US to cope with any fallout, I tend to be more skeptical. Our banks have surely been aided in earning record profits off the back of complex and risky debt arrangements with other lending institutions, businesses, and individuals in recent years? This has been a global issue, not just one relating to the US alone.

    Rewind back twelve months and I can still hear Howard repeating the same dangerous mantra “interest rates are lower and people can borrow more.”

    Howard said the heavier debt burden reflected rising affluence.

    “It is the case that people are buying ever more expensive houses, and they are doing that because of a number of factors,” the Prime Minister said. “One of them is that interest rates are lower and people can borrow more.”

    Yes, our hero was pushing a dangerous mantra indeed. In his opinion, it seemed as though a new era had arrived under his leadership.

    He then went on to say: “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.”

    At around the same time the Reserve Bank’s figures on household finances showed that assets were rising faster than debt (in spite of many Australian’s carrying record levels of debt). Households, they claimed had assets, including housing, superannuation and other investments, that are equal to eight times their annual income.

    Mark Davis, author of The Land of Plenty writes:

    “Australia’s ‘age of prosperity’, as Peter Costello calls it in his memoirs, has been underwritten by the mining boom (even as manufactured exports stagnated during his tenure) and massive increases in household debt (now more than $1 trillion – about the same as the annual national output), even as the government has wound down its own debt. The national debt has in effect been privatised while, at the same time, risk has been shifted away from government and business onto the shoulders of ordinary people, in the shape of long working hours, casualisation, and the sort of uncertainty that is written in the fact that Australians take the least holidays of any western nation.”

    It just doesn’t get anymore succinct and to the point than that. And it was the Howard Government that have left us in this precarious position.

    In fact it was reported just recently that our “economy is even more vulnerable to an economic downturn than the struggling US, leaving us facing the spectre of soaring unemployment, falling house prices and a long-drawn out economic slump.

    Experts say the only way to head off a crisis is to quickly cut interest rates and improve household finances decisively.

    The bleak picture is painted by economists who point to a series of data showing how we compare to the US.

    Australia has some of the most expensive property in the world, relative to incomes, according to the Demographia International Housing Affordability Survey.

    It says the median Australian house price is 6.3 times median household income, higher than the US, Canada, New Zealand, Ireland and Britain. A median Sydney property will cost nine times the average Sydney income.

    Australia also has more debt per household than the US, with Australians owing 177 per cent of household income in mortgage and other debts compared to 138 per cent in the US.

    This is coupled with the fact Australians save an average of 0.5 per cent of their income compared to 2.6 per cent in the US.”

    * Posted by: John McPhilbin on October 7, 2008 9:12 AM

  26. Finally, banks are staring to get real about their positions.

    NAB, ANZ join CBA in bad debt warnings
    http://www.theaustralian.news.com.au/business/story/0,28124,24818901-20501,00.html

    “TWO of Australia’s biggest banks warned shareholders today that bad debts would rise next year as the sluggish economy weakens.

    In gloomy outlooks, National Australia Bank and ANZ said the banking industry would suffer as result of the economic slowdown.

    The warnings came after the Commonwealth Bank’s debacle yesterday over its $2 billion capital raising, after the lender forecast on Tuesday night that its troubled loans would increase in fiscal 2009. ”

    Neil, a few basics for you (or maybe you’d like to blame Kev?):

    What we’re seeing is the end of a prosperous cycle and financial fragility levels move together with the business cycle. After a recession, firms have lost much financing and choose only hedge, the safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore, they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed.

  27. 25. John McPhilbin | December 19, 2008 at 12:08 am

    Dear John

    Thanks for the Julie Bishop link. I was interested to see that it was Peter Costello who established the Australian Prudential Regulation Authority (APRA). It was the establishment of APRA by Costello that stopped our banks giving sub-prime loans and maintained (relatively) responsible lending practices.

    Thank you Mr Costello

  28. Now where have the Government regulators been hiding I wonder (for the record Mr’s Costello and Howard were free market supporters and didn’t like interfering with banks so long as they were hauling in record profits). I wonder if our knowledgable cabbie knows some of these facts?

    Banks have lost the 5 Cs
    http://business.smh.com.au/business/markets/banks-have-lost-the-5-cs-20081218-7130.html?page=-1
    Michael Pascoe
    December 18, 2008

    What a day for two of our major banks to be holding their annual general meetings. And isn’t the CBA hierarchy glad their bank isn’t one of them.

    Not that there’s anything for the NAB and ANZ to feel smug about – far from it, as we’ll get to shortly – but it’s the CBA that has quite suddenly seen its reputation trashed. It’s gone in a few weeks from vying with Westpac to be regarded as our most reliable and conservative bank to being the one most dubiously managed.

    And that’s not just about this week’s farcical placement and apparent CBA insider trading, though that certainly doesn’t help.

    There’s been a touch of hubris around our banks about their profitability and highly desirable and increasingly rare credit rating. Some of that is due to APRA and some to a little corporate memory remaining about the ’90-’91 recession.

    There’s a less charitable theory that the only reason our banks didn’t get into a lot more trouble during the credit bubble is that they are rather slow and were already lolling around in so much easy money from their effective local cartel that they didn’t need to try.

    But as events inevitably unfold, it’s becoming clear our overpaid bankers have been capable of just as much negligence and arrogance as their American and European peers when given the chance.

    The easiest example of that is the ABC Learning saga. I table ABC as Exhibit A in the case against the CBA – which coincidentally is ABC backwards – wantonly disregarding the Five Cs of Banking. (We’ll make the CBA the nominal defendant, but ANZ and NAB shareholders can equally apply the charges at their AGMs today as both those banks were as mindless in their lending to Eddy Groves as well.)

    The Five Cs

    The Five Cs, as explained to me by an old-school banker, are the things that should always be ticked off before granting a loan:

    Character, Capacity, Consistency, Conditions and Collateral.

    Character and Capacity: Is the borrower a fine upstanding citizen who acts responsibly and has the willingness and capacity to repay? Eddy Groves, prior experience as milkman, sudden very public taste for private jets, snakeskin boots, and Gold Coast real estate, but no tangible assets. Even on ABC’s own dodgy accounting, it was vastly negative in the NTA department, floating precariously on $3 billion of fictitious “goodwill”. I couldn’t tick those two off but the CBA, ANZ, NAB and Westpac did.

    Consistency and Conditions: Is the proposed activity consistent with expertise and are economic conditions such that the venture has a realistic chance of success? Re expertise, see Eddy Groves above. There was a credit boom on and all credit booms end. Interest rates were rising and so was ABC’s debt as its expansion plans exploded. The only thing in the “conditions” favour was government policy to subsidise child care – but first it had to be run economically. Nup, couldn’t tick those two either, but the CBA, ANZ, NAB and Westpac did.

    Collateral: Finally, and only really as a last resort backstop, can you get good title to some security of value that gets you ahead of the other mugs that also exercised poor commercial judgement? Absolutely not – see “capacity” above. Don’t think for a moment that the ABC liquidator will realise much more than his fees and perhaps the extra funding provided by the banks and Canberra since it went belly up.

    From time to time bankers reasonably falter on getting one or two or even three of those right, but in ABC Learning’s case, they failed on all five and failed monumentally – about $1.6 billion worth of failure.

    What were they thinking? They weren’t – they were just going along for the same ride as everyone else.

    Ridiculous pay packets

    Perhaps the biggest mistake made by Tony D’Aloisio since he took the top job at ASIC was answering “because I wasn’t there” when asked by a parliamentary committee how the high-yield debenture scandal could have been allowed to happen. The answer implies that he will be totally responsible for any future mistakes.

    Ralph Norris has had the top job at the CBA for long enough now to be responsible for what goes wrong. That’s part of the justification for his dopey board giving him a pay packet that could reach $11 million a year.

    Such ridiculously large amounts of money are supposed to mean a CEO is responsible for the lot – no buck-passing allowed. Yes, it’s nonsense, but that’s the silly game they willingly play and pay.

    Ditto the ANZ’s $13-plus million man, Mike Smith. Smith has the luxury of still being able to blame his predecessor for the likes of Opes Prime – but that won’t last much longer. He was happily bought into the ANZ’s own exposure to ABC and similar follies. It all passed muster with him during the due diligence he must have done.

    And this is the ANZ which is appointing someone with no banking experience and a less-than-creditable recent boardroom CV as its new chairman. (See ANZ’s Eddington error.)

    At the NAB, John Stewart has his last AGM, passing out with a lower annual profit than the one recorded by his predecessor but with a much, much bigger pay packet. That’s NAB, the one Australian bank to be notably caught with a big CDO exposure – a billion dollar bag of trouble it had no sane business touching.

    The new boy, Cameron Clyne, can blame Stewart for any follies in the next little while, but the bank is yet to satisfactorily explain aspects of how its $7.3 million former Australian divisional chief Ahmed Fahour was able to sell NAB shares just a couple of days before a major placement. Fahour’s role was absorbed by Clyne today.

    (And as an aside, should Ahmed pay back the millions he received as a sign-on bonus to make up for what he might have made if he stayed at Citigroup? We now know that wouldn’t have been much after all, Citi shares being what they are.)

    Time bomb

    Then there’s Westpac, buying St George for much more than it is actually worth, buying even greater concentration in the NSW market, the worst in Australia. It has its own share of ABC et al. Is any one person at the bank really worth what they pay their CEO? No.

    There’s also a little matter of “conduits” – games the banks have been playing off their balance sheets with major corporates. The rort here was that the corporate would pay the bank a fee so that if credit markets hit the fan and the corporate couldn’t raise its own money, the bank would guarantee it.

    The time bomb in such an arrangement is bleedingly obvious. It smacks of all that was worst about the off-balance sheet finance company exposures that caused so much pain in the last recession. AGC, anyone?

    Before APRA gets too pleased with itself, that was a game it should not have allowed and none of the banks should have played. But they did.

    And I haven’t even mentioned their collective and several exposure to Babcock and Brown yet.

    No, our banks may be better than most, but they are not as good as they would like us to believe or that is justified by the ridiculous pay packets at the top.

    You can’t go far wrong voting against any bank’s remuneration report. These people can’t even remember their Five Cs.

    Disclosure: The Pascoe family super fund has plenty of exposure to Australian banks, just like everyone else’s super fund. Does your super fund vote?

  29. Neil@27 Not very successful

    THE BIG LIE EXPOSED: Big banks ignored sub-prime troubles

    https://blogocrats.wordpress.com/2008/10/13/the-big-lie-exposed-big-banks-ignored-sub-prime-troubles/

  30. Neil, once again (re: 29) where were the government regulators?

  31. “Neil, once again (re: 29) where were the government regulators?
    30. John McPhilbin | December 19, 2008 at 12:31 am”

    Dear John

    From the little bit i do know i think APRA while not being perfect, did stop the banks going down the path of the American banks. The banks did want to get into sub-prime lending like the American banks but have very low sub-prime lending because of APRA.

    I would also say, where are all the auditors??? When a company goes belly-up why arn’t the auditors called to account??? You know GM, Ford, Chrysler must have auditors who say the books are in good order.

    PS- I think the taxi driver has a lot of wisdom

  32. PS Neil . The Howard Government failed. Sad but true. Time to get over your infatuation. It’s making you blind to the obvious.

  33. @22

    Gee, I made a spelling mistake…it’s not the first time and won’t be the last either.

    “Blame botox leakage.” LOL!

  34. Neil

    The fallout in our housing market has only really just begun. Watch in 2009 and ask yourself what could my heroes (the Howard Government) have done to prevent this?

    Big banks ignored loan risk warning
    http://www.theaustralian.news.com.au/story/0,25197,24766297-5013404,00.html
    Sean Parnell, FOI editor | December 08, 2008

    AUSTRALIA’S biggest banks were “relaxed” about the high number of mortgage defaults in western Sydney and “sanguine” about the quality of secured housing stock, according to Reserve Bank accounts of confidential meetings with the lenders.

    Despite warnings from regulators to be more careful when lending money, the big banks persevered with low-document loans and high loan-to-value ratios – even as the number of customers in arrears increased – to see off competition from smaller lenders.

    While their rivals might once have taken the biggest risks and therefore had the highest arrears rates, the big banks tried to ride the property boom to build their market share.

    As a result, one of the big five banks recently conceded it had a substantially higher arrears rate than normal, as regulators warned the number of problem housing loans nationwide could triple.

    Documents obtained by The Australian using Freedom of Information laws give a new insight into the attitude of banks and regulators when customers began defaulting on their loans, first because of rising interest rates and then because of the global economic crisis.

    The regulators have long been worried that increased competition, and a decline in lending standards, would have dire consequences. Australian Prudential Regulation Authority chairman John Laker even gave a speech in June last year insisting he was not crying wolf when he demanded lenders be careful.

    But the big banks took even greater risks with non-standard loans in the last six months of last year – ignoring the sub-prime crisis in the US and rising interest rates at home – to compete with other lenders. But as the rate of customers in arrears rose, the banks appeared unconcerned.

  35. John, here are some figures to crunch.

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/5302.0/

    I lifted it from Jack’s site.

    Jacksprat posted it there.

  36. #27. Neil of Sydney | December 19, 2008 at 12:20 am

    Thanks for the Julie Bishop link. I was interested to see that it was Peter Costello who established the Australian Prudential Regulation Authority (APRA). It was the establishment of APRA by Costello that stopped our banks giving sub-prime loans and maintained (relatively) responsible lending practices.

    Thank you Mr Costello

    When you said you knew little of about APRA you were right you do know little. APRA is not what stopped the banks going the way of American banks and in fact they were heading that way.

    It is the Banking Act of 1959 that underpins our banking.

    Deposit-taking institutions are regulated by APRA under a single licensing regime. The Banking Act 1959 gives APRA power to authorise and revoke authorities of authorised deposit-taking institutions (ADIs), to make prudential standards or issue enforceable directions, and to inspect ADIs. In addition, ADIs which are permitted to accept retail deposits are covered by the ‘depositor protection’ provisions of the Banking Act 1959. These provisions provide APRA with the power to act in the interests of depositors, including the power to appoint a statutory manager to an ADI in difficulty to take control of the institution.

  37. …and JMc – I’m still waiting for the re/insurance fall out when the banks finally come clean (well hang out ALL their dirty washing!)

    …and JMc – where are our wonderful regulators now?

    …not a whimper, not a word, not even a simper have we heard! (sorry just feeling the moment!) …

  38. I caught something on TV last night about women still only making up about 10% of CEOs of the ASX Top 200 companies

    Then just this morning I see Pixie Skase is back in town…………Was she headhunted perhaps for a job at Commonwealth Bank …………..?

    Her deceit, duplicitousness, arrogance, condescension, and general moral bankruptcy would make her CV a perfect fit for CEO at the Commonwealth.

  39. John McPhilbin = Financial Think Tank for “Beyond Blue”

  40. Re the ARPA thing, don’t forget that banks were overseen by the reserve bank before the creation of APRA so it wasn’t as iff Costello invented regulation – as Adrian pioints out, the regulation exists in the form of Banking Act and other legislation.

    Also, if I find the time today I’ll try and dig up an interview I heard on the ABC the other day regarding the creation of APRA. The interviewee was saying that APRA was created on the conventional economic theory at the time that conventional banking would be replaced by security type instruments and hence the combined pridential regualtor – this theory has subsequently been debunked and perhaps APRA isn’t the right body to regualte banks and possibly the reserve bank model should be reassessed.

  41. Walrus@39 Insult or compliment?

    TB@37 Me too. And the silence is deafening

    Adrian and Dave55 Don’t you just love the fact that the media has to obtain hidden fact through FOI to obtain certain RBA facts? And you’d think they’d have jumped up and down when they’re realised what was happening? and APRA = tits on a bull.

  42. “When you said you knew little of about APRA you were right you do know little.”

    Yeah, but don’t you love the way that someone who also admits he knows little is always absolutely certain that based on his ignorance his opinion is always right (in both senses of the word).

    Personally, I find such certainty based on such ignorance hilarious.

  43. John

    APRA = tits on a bull.

    To be fair, they have picked up their game since the HIH debacle but it’s still pretty weak.

  44. “To be fair, they have picked up their game since the HIH debacle but it’s still pretty weak.”

    HIH – yet another of the legacies of Howard’s time as part of the Fraser government and his decision to ignore the advice of the department.

  45. Huh

    “Yeah, but don’t you love the way that someone who also admits he knows little is always absolutely certain that based on his ignorance his opinion is always right (in both senses of the word).

    Personally, I find such certainty based on such ignorance hilarious.”

    Over two decades as Fed Chairman and Greenspan finally admitted he was clueless is another tragic example of that type of ignorance. Hilarious? I can’t help but have a laugh sometimes.

  46. And we thought our mining boom was a safe haven?

    Western Australia’s boom time is over thanks to economic meltdown
    Article from: The Australian
    http://www.news.com.au/dailytelegraph/story/0,22049,24822262-5014099,00.html

    * WA’s once-in-a-century boom is over
    * State to slide into deficit by 2011
    * Falling commodity prices to blame

  47. Neil re 46, I know this too is Kevin’s fault.

  48. 46.

    Yeah I was going to mention that to hit Neil with.

    A Liberal state government is failing, breaking promises, going into debt, increasing taxes and cutting back on vital infrastructure, all after only just getting into power and saying to the Sandgropers during the election campaign they would not do any of these things as that is only something Labor does.

  49. “Over two decades as Fed Chairman and Greenspan finally admitted he was clueless ”

    Yes, Greenspan admitted that what he thought he knew was wrong. But at least he based his opinions on what he thought he knew and not what he knew he didn’t know.

  50. As I have stated before, I worked in the Banking industry for 22 years before becoming a broker in 2004.

    The ONLY reason we are not in the same mess as the US and the UK is that we are usually 2 to 3 years behind in providing the type of financial facilities offered in the US and the UK.

    Lending criteria was being relaxed more and more every day as each financial institution sought to manitain market share.

    Funnily enough as we all know lending criteria is now being tightened very quickly.

    Had this meltdown occured in 2 or 3 years time we would have had exactly the same types of loans within our major financial system as they were being offered by smaller funders for over 2 years.

    APRA does not oversee lending standards. If they did then the same rules for every loan regarding assessment would be identical to all financials institutions and I can assure you that each bank has different criteria for loan assesment.

    For Neil to congratulate Peter Costello on financial control is a total phurphy. The deregulation of the financial services sector under the Howard years was more than in any time in our history. They may be credited with other good policies however control over our financial services industry is certainly not one of them.

  51. 50. shaneinqld

    “For Neil to congratulate Peter Costello on financial control is a total phurphy. The deregulation of the financial services sector under the Howard years was more than in any time in our history. They may be credited with other good policies however control over our financial services industry is certainly not one of them.”

    LOL precisely. They were the banking cheerleaders and only raised objection when banks refused to increase interest rates in lockstep with the RBA.

  52. LOL precisely. They were the banking cheerleaders and only raised objection when banks refused to increase interest rates in lockstep with the RBA.

    Did I write raise interest rates? We know that’s never been a problem.

  53. Yeah, but don’t you love the way that someone who also admits he knows little is always absolutely certain that based on his ignorance his opinion is always right (in both senses of the word).
    49. Huh | December 19, 2008 at 11:55 am

    Dear Stupid leftoid

    I am not an expert on the Australian financial system. Furthermore I am not too sure if the so called experts know anything either. However i think that Julie Bishop made some sense. John McPhilbin provided a link to her blog. She said this

    “In response to the recommendations of the Inquiry, then Treasurer Peter Costello established four key pillars of strength with responsibility for regulation shared between the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

    Each is an independent authority and they have complementary roles in ensuring the stability and strength of the nation’s economy and the financial sector.

    APRA has played an important role by ensuring that Australian institutions have maintained responsible lending practices and that means there are very low levels of sub-prime or comparable loans in this country.”

    makes sense to me. Thank you Mr Costello

  54. When punning about these types (“what a bunch of ?ankers”) I’d also suggest “what a bunch of Fuggers”. (See wikipedia about the Fugger family, particularly Jakob).

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