ANZ bank- what's up?

[OllyN]

Can any one explain to me (in simple English) why a mega-bank like the ANZ has gone the the local market to raise almost $1 billion dollars in new deposits in little over a one month period?

I would have thought that banks would be awash with cash from people too scared to leave their savings in higher risk finance companies or the like.

Also remember that the Reserve Bank has just recently relaxed the rules for trading banks to borrow extra cash from that source as well.

I can remember the mid 80' s when it was possible to get 300% p.a. and more for over-night money as NZ suffered a credit crisis at the time caused by high interest rates, massive inflation and a falling dollar.

Is there something nasty out there that we don't yet know about?

You tell me.


ANZ National seeking $100m
By GARETH VAUGHAN - Fairfax Media | Friday, 23 May 2008

ANZ National Bank, the country's biggest bank, wants to raise a minimum of $100 million in a public debt issue just a month after raising $835 million in an earlier bond issue.

ANZ said today the new offer was for up to $100 million worth of bonds, but with an option to accept unlimited over subscriptions at the bank's discretion. The bonds will offer investors' two year or six year maturity terms.

The bonds will be allocated following applications from institutional investors and brokers. They are expected to be issued on June 9 and be listed on the NZX debt market.

ANZ said it would use the money raised to meet its on going funding requirements.

Just last month ANZ raised $835 million in a perpetual bond offering, which included $435 million in over subscriptions. Those bonds will pay interest of 9.66 per cent per annum.

The ANZ offers join a flood of bond issues from the trading banks who have found borrowing money internationally tougher due to the international credit crunch. They're also benefiting from investor nervousness after a spate of finance company collapses.

ANZ said its latest debt issue carried an AA credit rating from Standard & Poor's, Aa2 from Moody's Investors Service and AA- from Fitch Ratings.

[McDuck]

Come on Olly.

You can figure it out.

They can count on and control local money, the same can not be said for international money.

[OllyN]

In reply

Nope- that cannot be the answer. Far to simplistic.
How does the ANZ's credit ratings compare with other banks?

[Niall]

Nope- that cannot be the answer. Far to simplistic.

Ummmm K.I.S.S

It may be cheaper to borrow from bond holders than the Reserve Bank.

Too simplistic for you?

As to bank ratings:
ANZ National Bank Ltd. AA /Stable/A-1+
ASB Bank Ltd. AA /Stable/A-1+
Kiwibank Ltd. AA- /Negative/A-1+
Westpac New Zealand Ltd. AA /Stable/A-1+
sourced from /www2.standardandpoors.com

All the best,

Niall

[Davo36]

I think Olly is on to something here.

ANZ have declared bad debt provisions recently. Firstly it was $200m then around $1 billion. Then a week later it was $2.4 billion.

I bank with ANZ and spoke to my manager about it. He sent me an email from the CEO basically saying everything's OK, nothing to see here, move along...

The wording was almost exactly the same as from finance companies just before they go under. Business is good, loan book is strong, only a small part of the business affected etc.

David

[watchful]

I certainly get the feeling that ANZ/NAT are more exposed than other banks. Would be interested to get the 'official' stance

[Gatekeeper]

Hmmm

Maybe it's to pay their tax bill!

News keeps getting worse for ANZMay 20, 2008
Page 1 of 2
This time a New Zealand offshoot is taxing the bank, its latest accounts reveal.

SETBACKS tend to come in threes, so perhaps it's no surprise that ANZ Bank should be find itself labouring under yet another financial dead weight.

After an increase of almost $1 billion in half-year provisions caused by soaring bad debts - this is on top of the Opes Prime fiasco - comes updated news of a tax problem faced by the bank's New Zealand subsidiary, National Bank.

The bank has been at odds with the tax authorities over various structured finance deals dating back over a five-year period from 2005.

The National's half-year accounts to the end of March, which were filed with the ASX yesterday, show that New Zealand's Inland Revenue Department has widened its inquiry to cover other deals undertaken by the local bank.

ANZ puts the maximum tax liability of these transactions at $NZ365 million ($296 million), or $NZ523 million with interest.

If ANZ ends up with the whole bill, it will be able to offload $NZ99 million (or $NZ147 million with interest) to the British bank Lloyds TSB, from which it bought the group just over four years ago.

But that will still leave it with a potential liability of $NZ266 million - or $NZ376 million if you count in the added tax.

The dispute is still at an early stage and ANZ emphasises that there is no liability as yet.

http://business.smh.com.au/news-keep...0519-2g0f.html

[exnzpat]

A company normally issues Bonds when it needs to raise capital. Bonds always have a guarantee of return, unlike stock. 9.66% is pretty attractive.

Why raise money?

Before lending money to New Zealand home buyers/speculators/spurikers/credit card holders etc., a small bank like the ANZ borrowed money from a bigger international bank, which, in turn, borrowed money from an even bigger international bank and so on and so on. Money costs money, and in case you guys haven’t heard; there is a credit crisis in the overseas banking markets.

No doubt, ANZ have been looking to the bottom line, not the media (negative or positive), and are actually doing a little math before the start of each day and are getting some pretty alarming feedback on credit out vs. cash in and the future prospects of the New Zealand debtor community.

OMG!

The plain English answer: they need money, and lots of it.

[OllyN]

In reply

Still not making sense. The ANZ is a leading lender of mortgages to home buyers and developers. For these mortgages they charge around 9% p a. but are offering that and more in interest to depositors (9.66%. for the last $835M).
How does this negative margin create a "profit" and real cash reserves?
Don't tell me credit cards make up the difference.

[roseneath_rat]

They will also have a large stack of business borrowing out there at rates of 11-15%. The reality is that cheap offshore money is hard to come by. Wholesale market borrowing margins have increased by 1.3% over the last 6 months for major banks. That's the MARGIN over and above the increase in wholesale base rates. Its no secret that ANZ is being hit harder in Oz by delinquent loans and I believe their ability to get funds offshore will be tougher than other banks given their pending subprime and bad debt provisions.

[McDuck]

Still not making sense. The ANZ is a leading lender of mortgages to home buyers and developers. For these mortgages they charge around 9% p a. but are offering that and more in interest to depositors (9.66%. for the last $835M).
How does this negative margin create a "profit" and real cash reserves?
Don't tell me credit cards make up the difference.

Forget about all that.

They are thinking ahead.

They milked the run of cheap money from offshore, now they want to secure their position.
Short term and long term thinking.
Smart if you ask me.

[exnzpat]

Still not making sense. The ANZ is a leading lender of mortgages to home buyers and developers. For these mortgages they charge around 9% p a. but are offering that and more in interest to depositors (9.66%. for the last $835M).
How does this negative margin create a "profit" and real cash reserves?
Don't tell me credit cards make up the difference.

Good point.

My guess is that it may depend on their accounting format. Creating quarterly and annual balance sheets should be categorized as an art form or some type of magic instead of math. The right accounting team can make a dog of a company look like the best thing since sliced bread or make a real performer look like a dog for tax or other purposes.

It may be an accounting slight of hand that is based on some future earnings or loss.

Don’t write credit card debt off so easily. This is a real worldwide problem that has not yet been at the forefront of the newspapers. Credit card debt and other unsecured loans are going to be a big problem in the future.

The term unsecured implies just that: the security of the payment. How secure is the loan? Will the borrower actually pay it back? And in today’s tight environment it’s a good question to ask.

I could tell you a few things about this subject. But, the information, while accurate, is so bizarre I doubt that any of you could imagine how it will affect NZ borrowers – it will eventually -- but I open myself up to getting trashed by the boards' yahoos -- because it‘s pretty strange stuff.

[McDuck]

I'm interested.

but remember, as you step out in stages from cause and effect, the accuracy becomes weaker with each layer.

so.. you can only work back so far.

[mortgage broker]

I want to hear these strange theories as well.

Going back to the interest rates, don't forget when they pay the interest effects the compounding effect, their home loans and o/d usually have the interest taken out monthly. When will these bonds mature? Also they might be working with an average rate over all their cash, there is a lot of cash sitting in cheque accounts which they do not pay anything for.

[Commercial Dan]

A lot of institutions are raising capital, or they all must have a lack of it or are hedging against disaster. Seems strange though. I wonder if we will have our Bear Sterns in Australasia?????