Are Australian Banks Safe II

“Me thinks he doth protest too much”, may well be appropriate here. I saw Rudd-747 interviewed by Kerry O’Brien on ABC 7:30 Report Thursday night and he was wriggling like an eleven year old school boy about to get the cane.

I can understand he was reluctant to answer Kerry’s very direct questions about the viability of our Banks. He could start a panic if he hints of any problems.

He managed to side step most questions on the basis he is not a forecaster of future trends. He really didn’t have any answers apart from advice for the G20 meeting, nor was he reassuring as far as I was concerned. But then I don’t know if anyone would have handled it better.

The real issue is no one knows what is likely to happen. The free markets are being completely distorted across the world by individual actions from different governments who often have far worse problems. A 1,000 point swing on the DOW is not capitalism at work, it is investors trying to work out what the governments will do next and speculators trying to capitalize on fear and greed.

Capital doesn’t like uncertainty so it flows where it thinks there will be calm. Ireland declares out of the blue it will insure all deposits. The UK got upset with Ireland because I understand only the UK can print the money Ireland would need for any bailout.

The UK was upset even more when the English bank deposits were taken out and put into the Irish banks. So the UK appears to have gone part way to insuring deposits to stop the mass migration of money that would send English banks down the tube.

Then the Germans got in on the act followed by other European countries.

How does this affect Australia? No one knows except that it probably will. It is a simple as that.

Australia is swimming in Tax Surpluses and Telstra Sales Money.

Australian Government Future Fund information from Wikipedia

“The Australian Government adds the 2008 and 2009 budget surpluses, valued at AUD $41 billion, into the fund.[11] The 2008 federal budget created a $20 billion Building Australia Fund to invest in roads, rail, ports and broadband, an $11 billion Education Investment Fund, which absorbs a similar $6 billion fund set up by the previous government, and a $10 billion health and hospital fund. These new funds will be administered by the Australian Government Future Fund, bringing the total value of the Australian Government Future Fund assets to AUD $106.6 billion by the end of 2009-2010 financial year, with the three funds to be separate components.”

Australian Government awash with Tax Payers Money stored in various Funds

“All the funds will be administered by the Future Fund, chaired by former Commonwealth Bank chief executive David Murray, which already holds $60 billion set aside by the former government to cover public service superannuation liabilities.”

Rudd is open to better bank deposit protection but it is not here yet.

“Our attitude is when it comes the Australian banking system first of all we have a depositors first system. Secondly, the financial claim scheme which the government released publicly earlier this year is with the finance sector now and we will be legislating on that scheme shortly,โ€ he said. (Kevin get moving please)

I think Kevin needs to get “real” and pro active now to support our banks as follows;

  • Kevin may have to insure deposits to compete with the rest of the world. He may have to take equity in any bank that looks shaky too.
  • If he is so confident our banking system is safe it should be a “no brainer” to guarantee all deposits for a time at least.
  • He should also stop all tax on interest from bank deposits to encourage us to use the banks again. It is the cheapest money banks can get and not affected by the exchange rate.
  • He should also stop trying to kick-start the non-bank lenders, many of whom were responsible for some of the bad loans that are likely to cause Australia problems. He has already spent $4B of our money buying their mortgage obligations.
  • He should be prepared to use some of the Tax Surplus billions he has stashed away to protect bank deposits if he needs too. Distribute the cash still in the future fund around the big four if it not already there.
  • Kevin should insist the Banks cut their dividend and use it to shore up their capital base.
  • If any of the Big Four Banks fails and people lose their money it may well result in Kevin losing the next election  and Labour being out of office for a generation. Each of the Big Four may have 20% of the population banking with them. That’s a lot of very upset voters.

The banks only report the last quarter and will probably avoid forecasting future performance or profit downgrades. They have to be forced to fully disclose what is happening in their banks. There are several major threats to our banks.

  • Deposits will likely increase significantly if we have confidence our money is safe. There may be money sent off shore to Ireland and other places where the deposits are fully guaranteed though.
  • Lending money to buy homes or run small businesses will slow down significantly for a while as people won’t want to take on risk or may not qualify for a loan anyway. People are now getting the message there is a major problem so taking out loans will be avoided.
  • The profitable credit card part of all banks business will take a hit because people will just stop spending and using their credit cards. In fact it is likely they will pay off their existing debt further reducing the banks profits.
  • Wealth Management will take a profit hit due to the stock market crash and client redemptions. This was a highly profitable part of bank business last year with John Howard allowing Baby Boomers to contribution up to $1M to their super.
  • Bank profitability is likely to take a nose dive in the short term. We need to make sure the banks keep fully disclosing their positions to ensure there are no surprises that might cause panic.
  • If they think the 300,000 estimated new immigrants are coming here with suitcases full of cash to buy houses and start business they must have rocks in their head. I suspect many of them come here for a better life and don’t have any assets to speak of. So which bank is going to lend them $300K-$400K to buy a house the day they arrive in Australia.
  • If the financial system fails completely, people will buy government bonds, gold or put their money under their bed.

The problem is I’m not sure that Kevin won’t set up a committee to study such proposals to report back to him sometime in 2010. He seems more concerned with processes than results. So don’t hold your breath.

Always have a plan for the next worse situation, which in this case is a run on the bank you have your money in. (Unless Rudd gets with the program to guarantee deposits.) Just make sure if you have your money in a bank, it is at cash not term deposits. Have a bag at your front door, ready to carry your money from any bank that looks likely to fail.

Just remember also what the Reserve Bank Governor Glenn Stevens said just before he dropped interest rates by 1%, “conditions in Australian banks are “light years away” from those in other banking systems overseas.” Protect yourselves and act in your own best self interest.

4 Responses to “Are Australian Banks Safe II”

  1. Paul says:

    Yes, The sooner Rudd moves to protect 100% of our banks savings ,as Ireland has done the better. If the banks are SO safe, what’s the problem?
    But as most average aussies don’t have much in bank savings, how about protecting our super funds, or what’s left of them. You don’t read much about that subject! Anyone have any comments of super fund security?

  2. admin says:

    Hi Paul,

    He must be reading my Posts ๐Ÿ˜‰ Seriously though as long as he protects my deposits I don’t care where he got the idea from.

    Helen Dalley from Sky Business asked Lindsey Tanner (Finance Minister) about protecting super funds and all he said was the government will make sure the financial problems will be sorted out so the super funds can recover over the long term.

    What I suggest is consider moving any cash and fixed interest funds out of the super fund and into banks deposits – if you are in or near retirement and don’t have too much cash.

    Then the equity and property portion of the portfolio can be left to hopefully recover over time.

    But as usual please make sure you talk with a qualified financial planner before deciding to do this.

  3. Will says:

    This is one mob’s prediction everyone should have a look at.
    http://www.marketoracle.co.uk/Article806.html

    It was made in April 2007 and is/was spot on.

    The scary part is the Institutions on a Bubble section. I’m not much of a ‘chartist’ but this chart, History of Home Values, was created by the eminent Robert Schiller of Yale. Scroll sideways and look at the real estate values from the mid ’90s to now.

    If all their predictions become correct, there is still another (BIG) shoe to drop.

  4. admin says:

    Will,

    Thanks for the information. That chart looks scary.

    Australia’s housing bubble is supposed to be worse than the USA’s according to Alan Kohler.

    If it is true, we have a whole bunch of shoes to drop!

    They are still trying to tell everyone our housing market should hold. I have one daughter who bought a house and one who didn’t. So I do and I don’t want house prices to come down.

    David

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