Westpac - Mixed Signals

[k1w1]

So, they have reported a 6pc profit rise, but also a call to make use of the RB's funding facilities.

We hear the "it's not a sign of weakness" stressed by mgmt, but surely they would have known such an announcement would give their depositors a bit of a reason to sit up & wonder why?

What to make of this, I wonder?

[roseneath_rat]

The fact is kiwi that wholesale funding costs are on the rise, if a major bank can access cheaper funding using a Reserve Bank funding facility instead of the international money markets why wouldn't you? There is steady competition in the deposit market & chances are the RB funds come at a lower cost than those paid to retail investors.

[spurner]

So the RB is effectively subsidising all our loan payments?

[Davo36]

They're propping up borrowers and hurting saveers. Ridiculous really.

May as well go out and borrow as much as possible on anything, the govt will look after us.

David

[roseneath_rat]

So the RB is effectively subsidising all our loan payments?

Yes the Reserve Bank is lowering the effective cost of funds for institutional investors, which will have the net effect of keeping borrowing costs lower than they would otherwise be. Of course they have other more direct controls on domestic interest rates by using the OCR, and we all know that has also been agressively lowered lately.

[drelly]

Banks: We will help struggling borrowers

Banks have promised to relax mortgage repayment conditions for struggling home-owners as part of a deal with the Government guaranteeing their overseas debts.

[jporteous]

6% Interest Rates

Hi

I have been following Tony Alexander's weekly BNZ reports. In his overview on the 23rd October & now 30th Oct I noticed the comment below:

The two year fixed housing rate reaching 7.5% in mid-2009 or earlier, with further downside after that assuming easing of the credit crisis. Falling to the 6.5% low of 1999, 2001 and 2003 is unlikely this cycle. (If you have been regularly reading this sentence you may have noticed removal of the word “very” before “unlikely”.)

Does this bank guarantee now may this "likely". If so will that change your investing decisions in the short-term?

Jono

[roseneath_rat]

I'm not sure I understand your question Jono.

Are you asking whether government bank guarantees will further lower retail interest rates in the near future?

[jporteous]

I'm not sure I understand your question Jono.

Are you asking whether government bank guarantees will further lower retail interest rates in the near future?

Sorry RR - Essentially Yes

Before this annoucement Tony was predicting 7.5% 2yr rates by mid-2009. Untill recently he though it was very unlikely to go to mid 6.5%. He has eased this to just "unlikely" last fortnight. So would this annoucement now make it "likely"?

Jono

[drelly]

You're asking if changing from "very unlikely" to "unlikely" makes it "likely"???
No... it makes it "unlikely" in his opinion as written.

[k1w1]

Where does "mildly unlikely" fit into all this?

And "somewhat unlikely"?

What is that more or less than "somewhat likely"?

[roseneath_rat]

Don't forget 'rather unlikely' and 'probably unlikely.'

Odds on a racehorse change from 1-30 to 1-25... its still unlikely to win, but slightly more likely than before.

[SmallBrain]

... or now more likely to be less unlikely than very unlikely before...

my head is spinning...

[jporteous]

hi

It seems "likely" that my question was a dumb one

I will wait till Friday to read Tony's newsletter to see whether the govenment support will have an impact on his forecast rates. Will update you then if there is any change.

Jono

[spurner]

So won't the RB's intervention having a similar (albeit much less potent) effect on NZ, than the sub-prime crisis did to the USA?

In USA they gave loans to people who couldn't afford them, at artificially low interest rates.

Now in NZ, people can get loans at interest rates lower than they would otherwise be, meaning some people might not have been able to afford them otherwise. Lower interest rates will encourage more borrowing, more spending, inflation, and pushing asset prices up. I suppose so long as the intervention is permanent (as opposed to an opening low interest rate which is later hiked), then it shouldn't matter, but still...