You’ll recall on Friday your editor bashed out emails to the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), and the Australian Securities Exchange (ASX).
We wanted to know when they knew about National Australia Bank [ASX: NAB] and Westpac [ASX: WBC] taking emergency loans from the US Federal Reserve.
After all, you’d think it would be something all three regulators would be keen to know.
And ASX listing rule 3.1 states:
“3.1 Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.”
It seems pretty clear cut doesn’t it?
Only an unreasonable person would think that a major bank receiving a liquidity injection from a foreign central bank is not newsworthy.
Think about it this way. If a small listed mining company has liquidity problems, and they need to raise more cash or increase a loan facility with a bank, the directors of that company know they immediately need to halt trading in the shares and release a statement to the market.
So why the special treatment for the banks?
I mean, when the NAB announced a $3 billion share placement on 10th November 2008 the company immediately requested a trading halt.
Yet when the NAB borrowed $1.5 billion from the US Fed just a few days before on 6th November there was nothing but the sound of crickets.
You can see that from the ASX announcements below. The red arrow indicates where the NAB disclosure should be:
Source: Australian Securities Exchange
Of course, as with anything, there’s always a get-out clause. Although even in this circumstance we can’t see that all three criteria apply that would allow the NAB not to disclose the secret loans.
ASX Listing Rule 3.1A states:
“3.1A Listing rule 3.1 does not apply to particular information while all of the following are satisfied.
“3.1A.1 A reasonable person would not expect the information to be disclosed.
“3.1A.2 The information is confidential and ASX has not formed the view that the information has ceased to be confidential.
“3.1A.3 One or more of the following applies: It would be a breach of a law to disclose the information; The information concerns an incomplete proposal or negotiation; The information comprises matters of supposition or is insufficiently definite to warrant disclosure; The information is generated for the internal management purposes of the entity; The information is a trade secret.”
Look, your editor is no expert at deciphering legal talk. But as far as we can figure in order for the information to not be disclosed to the market it has to satisfy 3.1A.1, 3.1A.2 plus one reason from 3.1A.3.
Even before you get into the more complex reasons, 3.1A.1 is unsurpassable. A reasonable person would expect the information to be disclosed.
But it’s amazing how the mainstream press continues to be silent on this bombshell of a story. Perhaps they take the same view as some of the readers who have contacted us to say the fact NAB and Westpac took money from the Fed isn’t surprising at all.
That credit markets had seized up and they were merely taking cash to tide them over. A bit like a payday loan we suppose.
The other argument is that well, every other bank was doing it so what’s the big deal? And Aussie banks came through the financial meltdown unscathed.
Believe me, it’s a big deal. When your main business is looking after money for people and you’re faced with a situation where if you can’t get an emergency loan then you won’t be able to honour requests for depositors to withdraw their cash, that’s a big deal.
And that’s exactly what happened. Because banks are so leveraged, their balance sheet is hugely impacted even by small falls in asset prices or by increases in cash withdrawals.
For example, we’re curious to know why NAB’s ‘cash and liquid assets‘ position fell from $20 billion at the end of December 2008 to just $10.7 billion at the end of January 2009.
Is it just a coincidence that it covers the same period when NAB needed emergency loans from the US Federal Reserve? And possibly emergency loans from the Reserve Bank of Australia?
That’s right, as the Australian Financial Review (AFR) reported on Friday:
“The RBA has not disclosed which Australian banks took the money.”
We’ll have a guess… Each of the Four Pillars, and probably the smaller players too. You don’t need to be a central bank insider to figure that one out
The truth is, I don’t know. Maybe it’s a coincidence that NAB’s cash position halved. But there doesn’t appear to be any precedent for it in previous years apart from the December 2004 to January 2005 period which was the year following the NAB currency trading debacle.
All I know is, there’s more to the story than has currently been revealed. Whether the full extent will ever be revealed of what the banks, central banks and government did during period is unknown.
But we were amused to read Westpac CEO Gail Kelly’s submission to the “Senate Economics Committee Inquiry into Competition within the Australian banking sector”.
Ms. Kelly’s submission was released on the same day the Federal Reserve revealed how Westpac had borrowed over USD$1 billion from the Fed in 2007 and 2008.
The submission sticks two fingers up at the truth by opening with:
“Australia has a strong, reliable and resilient banking system, with all of its participants contributing to that strength in their own way.”
So strong that two of the banks needed over USD$5 billion of emergency loans from 2007 to 2009, and other unnamed banks needed some of the USD$53 billion the RBA borrowed from the Fed on their behalf. But anyway, Ms. Kelly continues…
“In fact our banking system truly showed its worth through the crisis. The crisis remind the nation, and the world, how important it is to have a safe and strong banking system.”
So safe and strong that two of the banks needed over USD$5 billion of emergency loans from 2007 to 2009, and other unnamed banks needed some of the USD$53 billion the RBA borrowed from the Fed on their behalf. And on she goes…
“As the crisis unfolded, Australian banks moved to reduce their reliance on wholesale funding (both domestic and offshore), not just because the crisis had made that funding scarcer and more expensive, but also to achieve a better balance between wholesale funding and customer deposits in the overall bank funding mix.”
That’s right, Westpac reduced “their reliance on wholesale funding” by sidestepping the wholesaler and going straight to the manufacturer – the US Federal Reserve.
What the release of data from the Federal Reserve reveals is that the Australian banking sector didn’t avoid the worse of the financial meltdown at all. In fact it participated in exactly the same way as most other banks around the world…
It took taxpayer dollars and received central bank bail outs. That’s something we’ve pointed out all along. Although even we hadn’t figured on the fact that Aussie banks had gone cap-in-hand to the Federal Reserve, both directly and indirectly.
We’ll keep following up on this, as our guess is there are many more bombshells to come. As for how we’ve gotten on so far with responses from APRA, the RBA and ASX, read on…
The first reply came from the RBA saying:
“The Bank does not comment on commercial institutions’ business dealings or transactions.”
And that was it. Nothing more.
The RBA simply doesn’t comment.
Perhaps that’s because the RBA knows much more than it’s letting on. Such as the revelation that the RBA itself borrowed USD$53 billion from the US Federal Reserve. That surely makes it a taxpayer issue rather than a commercial issue.
As for the other agencies, nothing yet. But we’re sure they’re working on it!
And I’ll keep you posted as more info comes to hand.
For Money Morning Australia