More on the Aussie Banking Bailouts

More on the Aussie Banking Bailouts

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.

Cheers.

Kris Sayce
For Money Morning Australia

Kris Sayce

Kris Sayce

Publisher and Investment Director at Port Phillip Publishing
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Tactical Wealth, and Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.
Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments. Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.
It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for. So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook. Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day. Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read. To have his investment insights delivered straight to your inbox each day, take out a free subscription to Money Morning here. Kris is also the editor of Tactical Wealth and Microcap Trader where he reveals the best opportunities he’s discovered in the markets that you could profit from. If you’d like to learn about the latest opportunity Kris has uncovered, take a 30-day trial of Tactical Wealth here or Microcap Trader here. Official websites and financial e-letters Kris writes for:

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73 Comments on "More on the Aussie Banking Bailouts"

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Ben
Guest
Kris – normally I think you’ve got some pretty interesting view points but I think you’re analysis isn’t as sound this time for two reasons: a) whilst these amounts are at face value large, and yes it’s true that banks are highly leveraged, these numbers are relatively miniscule compared to capital or funding requirements… somewhere in the order of 3% for capital. I think your view would be newsworthy if we were talking about 25%. b) you haven’t tackled the alternative explanation that the nab saw a commercial opportunity to grab some cash cheap and fatten their margins. There’s a… Read more »
JB
Guest

Anybody bought any silver today?
it’s now over $1000 per kg.
anybody whose bought at under $1000 /kg will be regarded as geniuses shortly…

lol

michael francis
Guest

JB

With NAB unable to pay its foreign interest bill forcing them to raid their customer deposit accounts to make ends meet, silver might soon double.

UnSpin
Guest

This is gold Kris. Nothing’ll change though. But hey, it’ll be fun watching them mangle the legal system even further to try and justify their actions.

As you say, things are only as valuable as people perceive them to me. Governance and the law is no different.

meandring40
Guest

This story is starting to seep out to the fringes of the mainstream so I’ll be interested to see whether it’s got legs..

michael francis
Guest

meandring40

Maybe we should withdraw our deposits before it’s too late.
If this story does get legs there could be a run on the banks.

cb
Guest

MF @ 3 – and if silver gets remonetised in places like Mexico and China, silver could easily tripple in very short order. Chapman discusses the topic here:

Bob Chapman on Goldseek Radio 03 Dec 2010
http://bobchapman.blogspot.com/2010/12/bob-chapman-on-goldseek-radio-03-dec.html

Peter Fraser
Guest

Tomorrow is the 7th December – Nick has promised us all a big bank run tomorrow.

It will happen tomorrow he said.

It will be interesting…

Perhaps it is already too late to withdraw your money.

Peter Fraser
Guest

Whoops – I can’t link to any of those bank run articles.

I wonder ….

cb
Guest

State of the play, probably linked a few days back already, but here it is again:

Bob Chapman Friday Economic Report: Fed Wealth Grows While Others Drown In Debt
http://bobchapman.blogspot.com/2010/12/bob-chapman-friday-economic-report-fed.html

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