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Australian Banks Bailed Out

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  • Australian Banks Bailed Out

    From this morning's Money Morning

    Australian Banks Bailed Out
    Back on the 19th September we noted how the Future Fund was advertising in the Australian Financial Review (AFR) for a Senior Analyst - Debt & Alternatives. Well, it turns out the Future Fund has been getting further involved in the credit crunch/crisis/meltdown.

    According to The Australian, Australian banks have been so hard up for cash that they have arranged loans with the Future Fund.

    Naturally, the Future Fund claims in the article that the loans to ANZ [ASX:ANZ], National Australia Bank [ASX:NAB] and Westpac [ASX:WBC] are nothing out of the ordinary. It claims that these loans merely form a part of its $4.2 billion fixed interest strategy.

    The amount of the loan to ANZ was $500 million, or approximately 11% of the Future Fund's fixed interest portfolio. Add in the undisclosed loans to NAB and Westpac and we can safely assume the exposure is greater than 20%.

    Can this be classed as a government bail-out? If it isn't it's a smart way of getting around going to the government and RBA directly. It would be interesting to find out what interest rate the banks are paying, whether the loans are asset backed, and if so, what with?

    The problem with implicit or explicit government intervention is not so much the loans that are made. Although that is still troubling. It is also what the market can imply about other banks that are not provided with loans.

    Consider the market reaction if Suncorp [ASX:SUN] or Bendigo Bank [ASX:BEN] approached the Future Fund and were rejected for a loan. Alternatively would the government consider that eventuality as being to unacceptable and therefore pressure the Future Fund to make loans that it considered too risky?
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    so these banks need to generate some serious profits to balance their written off debts

    the gov. knows this but can't afford them to lift their mortgage rates

    so gov. drops the ocr on a kind of 2 for 1 system. ie gov drops rates 1% on the understanding that the banks drop their mortgages half a %

    this leaves the banks better able to generate profits and should be generally acceptable by the public

    does that make sense, look likely???
    have you defeated them?
    your demons


    • #3
      I don't get this whole they have to make serious profits to make up for their rightoff's though eri.
      After all they have been making billions of dollars of profit year after year for ages now. When was the last time you saw one of the majors posting a loss for the quarter or year?

      So whats happened to all those billions of dollars of profit? We are expected to save our profits or invest them wisely somewhere else, whats the story with the banks?

      They make a loss over a couple of quarters and all of a sudden its make it all back right now!!!!! ahhh well as they say "ours is not to reason why our is just to do and die"


      • #4
        This is good buying on the part of the fund. Bond prices relative to yields will be reduced due to liquidity pricing issues, so will be getting an excellent return while fulfilling their investment requirements of being allocated to strong investment grade investments. If I had serious money out there I'd be buying quality bonds with strong banks. As interest rates decrease the capital values of the bonds will increase substantially.


        • #5
          Thats very true RR.
          Your average investor won't go down that path though because they don't understand the bond markets. The negative correllation between bond price and it's yield for example is foreign to most people. Tell a client that if your investments yeild falls its value increases and they look at you as if you are mad.

          "that can't be right, surely it must be worth more if you get more income from it they gasp"

          Financial Literacy is still in the primma's (do we still call our school grades that here in NZ?).