This blogger will analyse at greater depth the new Westpac bubble-busting report soon. For now however, here is one spectacular quote that finally confesses the truth about Australian banks' new role as wards of the Australian state. There is no need to hide it anymore, they own us:
External shocks are potentially more problematic. A major commodity price decline for example could see foreign investors seek to lower their exposure to Australian banks. Australia’s heavy reliance on global capital means this would be an unsettling scenario. A collapse in global liquidity following the Lehman Brothers bankruptcy in 2008 caused global investors to cut their exposures to foreign borrowers and Australian banks were among those borrowers that suffered. The Federal Government’s response included temporarily providing banks with a government guarantee on bond issuance. Markets rebalanced and the guarantees settled the anxieties of foreign lenders. However this was in the context of a global liquidity crisis where all governments of debtor nations provided such guarantees.
A similar globally coordinated response by governments could be expected in the extremely unlikely event of a second global financial crisis.
If Australia was specifically hit by a commodity-driven crisis, investor sentiment towards an individual country requiring a government guarantee for its banks might be less understanding. Nevertheless we expect that investors’ decisions would essentially be driven by their assessments of the state of the domestic economy.
No ifs, no buts. No discussion. Just the simple assumption that if the bank gets into trouble on the liability side of its balance sheet, it'll be be bailed out with a new guarantee. Stunning moral hazard in action.
Well, this blogger has waded through it and just as the comments of his fellow bloggers below suggested, it is more of the same claptrap seen in the CBA and Fitch reports.
The only point of interest is that which is pulled out and highlighted above. Bill Evans' claim that his foreign-debt guzzling bank will be bailed out in the event of a terms-of-trade correction that hits housing. He offers no analysis or stress testing of the Budget in such a scenario. Yet it is obvious to this blogger that any such guarantee will be far more problematic second time around. Nor does Evans bother with any analysis of the costs of any such bailout to the Budget and the services it funds. Nor is there any analysis of the costs to the Budget after the event. Just assumptions and breathtaking arrogance.
This blog presents for your viewing pleasure, the Westpac report...