We always invite our loyal readers to form their own opinions. However, have a look at the data in the table below:
Happy to have a good discussion, but just look at these numbers. We also believe that things are going to get worse for these nice guys for the following reasons:
- APRA and the Reserve Bank are putting more pressure on banks to improve their equity to debt ratios in their balance sheets.
- Banks have been asked to stress test their balance sheets if interest rates rose by 2% - we would love to see the results if a stress test of a 4% interest rate rise was imposed.
- We don’t know if the banks, together with the Reserve Bank have woken up to the effects of Basle iii on their commercial lending. Have a read of pages 64 to 79 in this blog entry “Why 2017 will be like 2008 - but for different reasons.”
- We are not generally concerned about the risks and solvency of the Australian Banks. We have the best regulators in the world.
- However, Basle iii will mean that non AAA lending by the Australian banks will be difficult due to reserving issues if the Reserve Bank does not implement Basle iii.
- If would be very disappointing if they did not, and it would send a message to the world that we know more than the banking gnomes of Basle.
- The conclusion is that non AAA or AA rated companies will be forced to issue corporate debt to raise money.
- Mum and Dad will chase the higher interest paying debt without realising that it is more risky?
Another crash? Time will tell. Dump your bank shares now! Their dividends and prices will be under downwards pressure!
Happy Anzac Day 25 April 2017
Paul Resnik & Peter Worcester
Paul and Peter have almost 80 years combined experience in financial services. We are on a mission to educate investors to prevent them doing dumb things, either directly, or indirectly on the advice of their not so smart financial planner.