Is there more pain ahead for Aussie banks?
Since peaking in March 2015, the share prices of our major banks have been plummeting. I fear there is more bad news ahead with the markets beginning to catch up with factors that will limit the banks’ ability to grow their mortgage books as quickly as they have in recent years.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Paul Audcent
:
Ah but I remember what a certain Mr Buffet said years ago, so I have reinvested into one certain bank. Something like “When others are fearful” etc etc. Thank goodness I have both Mr. Montgomery and Mr Buffet on hand to help me.
John
:
Roger, this is a pessimistic assessment of the banks and you go through various dimensions of the issue with a shrinking of their ability to acquire revenue as their ability to issue more – and ever larger home loans- is curtailed.
I have mentioned previously that perhaps there are two additional issues. 1) that they are exposed to litigation because of their dodgy issuing of home loans, 2) and related to the first, if there is a housing crash – which is looking increasingly likely – their collateral will be held in both the homes (which are now worth much less) and in their ability to pursue debtors over the longer term. If debtors have defaulted, the banks would be likely able to secure debtors homes but courts may not honour there ability to pursue debtors (their debt obligation), especially if the initial loans they framed are viewed as having been issued under fraudulent conditions. This is where the banks might be vulnerable – they will have lost their moral legitimacy.
I have no expertise in this area but these seems plausible scenario to me.
John
Roger Montgomery
:
indeed. Thanks John.
Andre
:
Roger,
I think that it’s going to be a tough balancing act for all stakeholders if those with IO loans can’t make the jump to P&I. If delinquencies start to escalate, I expect to see the banks appeal to APRA for special consideration (i.e. exemptions) for these people.
Roger Montgomery
:
They already have, and we currently believe, there will be no changes to the definition of a “new mortgage”