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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: Big Profits $29 billion to Big Banks - people manacled to high risk Interest Only DEBT

Posted by on in Bankers A Law Unto Themselves
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The big danger is if RBA raise interest rates the entire Interest Only Loan Mortgage Market will collapse as the horror stories emerge.  People coerced into paying DEBT with more debt as "buffer loans."  Property market slips and those debts will reveal 120% LVR loans........................huge number of unaffordable junk mortgages, approved by major banks.

Warning to bank shareholders is in this statement: "The big banks are also propelled by a favourable industry structure, where the high levels of concentration deliver pricing power, and are big beneficiaries from the profitability of mortgages, which dominate their asset books."  

No mention of Sub Prime lending where most of the profits are coming from.  This email address is being protected from spambots. You need JavaScript enabled to view it.


Big banks to report $29b in profit


Some fund managers saw the heavy sell-down of bank stocks as a chance to grab some bargains, suggesting that the negative sentiment around the financial system inquiry may be overblown .

James Eyers  AFR  27 Oct 2014

Barring any unforeseen surprises, National Australia Bank, ANZ Banking Group and Westpac Banking will report combined cash earnings over the next week of around $20 billion ­having drawn off their financial years at the end of September.

This will push cash profits for the big four banks in 2014 (Commonwealth Bank of Australia has a June year end and reported in August) to just under $29 billion, topping the $27.3 billion raked in over financial 2013.

As much of corporate Australia ­continues to experience earnings jitters as clouds hover over both the domestic and global economies, another record year of earnings at the big banks reflects the extent to which they have become well-oiled profit-generating machines.

The banking sector is still soaring like an eagle because relatively high ­levels of household debt in Australia continue to generate solid net interest income, while the low levels of interest rates and unemployment has provided historically low levels of bad debts given the vast majority of Australians can service their mortgages.

Low-funding costs and the constant attention on expenses has provided additional levers for profit and loss statements to be cranked higher.

The big banks are also propelled by a favourable industry structure, where the high levels of concentration deliver pricing power, and are big beneficiaries from the profitability of mortgages, which dominate their asset books and deliver extremely high returns on equity (around 40 per cent for new home loans) given regulators allow them to carry relatively low levels of capital against mortgages compared to, say, lending to business.

It’s obviously crude to look at the headline numbers to assess bank ­profitability given their massive ­balance sheets.

September a stormy month

Rather, the market will be examining earnings later this week for whether the banks’ return on equity – which averages around 15 per cent – is justified given their future ­earnings growth trajectory. So later this week – NAB kicks things off on Thursday, ­followed by ANZ on Friday and Westpac on Monday November 3 – bank investors will be keen to hear about the outlook for credit growth.

Another key issue will be levels of capital and capital generation – given the spectre of higher regulatory capital buffers after David Murray’s financial system inquiry reports.

September was a tumultuous month for big bank stocks, which fell around 9 per cent from their peaks but then bounced back. The banks are currently up around 6.5 per cent from their ­September lows.

Part of the sell-down was a result of dramatic ructions in international bond markets, where expectations about the US Federal Reserve’s trajectory for interest rates saw bond yields spike – making yield plays such as ­Australia’s banks relatively unattractive for international investors (who were also getting stung as the US dollar strengthened).

But the equity market was also ­catching up with the implications of the financial system inquiry, as a flurry of sell-side analyst reports warned investors that banks may be forced to raise billions of dollars in equity to maintain the healthy capital ratios that are crucial to ensure access to international funding markets.

Some fund managers saw the heavy sell-down of bank stocks as a chance to grab bargains and reckon the negative sentiment around the financial system inquiry may be overblown.

One is Simon Burge, from ATI Asset Management, who says the banks have impressive capital-generation ability, including through their dividend ­reinvestment plans (DRP), and that if capital is ultimately increased, the banks are bound to be given plenty of time to meet tougher levels.

Cutting expenses is challenging

The banks will therefore be able to withstand whatever Murray happens to throw at them, Burge reckons. Nevertheless, Goldman Sachs analyst Andrew Lyons expects none of the banks will neutralise their DRPs during this reporting season (which involves buying back the same number of shares issued under DRP programs to prevent dilution) in order to fortify themselves against higher regulatory minimums, and for NAB to fully underwrite its DRP in order to lift its common equity tier 1 capital ratio. ANZ’s policy on building capital will also be closely watched.

When the profit numbers drop later this week, investors will also examine how the bank CEOs and their executive management teams are pulling the three main profit levers that can drive profit growth: increasing revenue, ­slicing expenses, or reducing provisions. On the latter, there is limited room to move on provisions for bad and doubtful debts.

Over 2013 and the first half of 2014, around 60 per cent of the improvement in the banks’ cash earnings was driven by reductions in bad debts, according to PwC. Given these are at historical lows, analysts say it is unlikely this lemon can be squeezed any further.

Reducing expenses is also providing to be more challenging with personnel and computer cost pressures emerging in the first half. After the interim results, PwC said banks’ operating costs were up 7.5 per cent over the previous year, with staff expenses up 6.7 per cent and IT up almost 10 per cent. But technology is also being used to drive ­productivity gains.

Along with capital generation, the other key focus of this earnings season will be earnings growth; as ANZ chief executive Mike Smith said after his interim result, “The issue for 2015 and 2016 is going to be revenue.”

Earnings growth is a function of both demand for credit from the economy, and also the ability of banks to pick ­market share off each other.

Decent macroeconomic tailwind

Across the sector, UBS analyst Jonathan Mott is tipping revenue to be up 5.8 per cent, which would make it the strongest performance since the bounce just after the GFC. The driver is net interest income. Similarly, Goldman Sachs sees revenue growth at 5.4 per cent in the second half rising to 5.9 per cent in the first half of 2015.

These levels of credit growth provide a decent macroeconomic tailwind for the banks but top line revenue growth also comes down to relativities – putting the specific strategies of each bank vis-a-vis competitors under the microscope.

NAB’s result on Thursday will be the most closely watched in this regard, with new CEO Andrew Thorburn expected to announce a broad, strategic review after earlier this month – on a call with analysts announcing another heavy UK-related writedown – promising analysts he would be ­available to answer all questions.

With Macquarie Group also reporting on Friday, the market is likely to closely look at ANZ’s markets income, with some analysts tipping this will have declined in the low volatility environment.

Westpac rounds out the full year earnings season on Monday next week, the Melbourne Cup will be run on Tuesday, and then, on Wednesday, CBA – which is ahead of the pack with its financial year by three months – will update the market on how it is tracking for the first quarter of 2015.

The Australian Financial Review



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