Covered Bonds issued by ANZ - depositors beware !!!!

banks are only allowed to source 8% capital in the covered market, and since the senior unsecured market has pretty much frozen up for the past 6 months, this is one of the few way left for banks to raise funding without paying through the roof for it.

Its covered by pools of mortgages btw..
 
The banks began discussions in the past two months after each of the majors presented at a Barcelona conference. Under the government's changes, the banks can issue bonds worth up to 8 per cent of their total assets.

The banks had pushed for a 10 per cent cap after the government initially proposed setting a 5 per cent maximum cap.
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Eeek
 
hyperinflation said:
banks are only allowed to source 8% capital in the covered market, and since the senior unsecured market has pretty much frozen up for the past 6 months, this is one of the few way left for banks to raise funding without paying through the roof for it.

Its covered by pools of mortgages btw..
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fortunately house prices always go up. :D
 
hyperinflation said:
banks are only allowed to source 8% capital in the covered market, and since the senior unsecured market has pretty much frozen up for the past 6 months, this is one of the few way left for banks to raise funding without paying through the roof for it.

Its covered by pools of mortgages btw..
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It all depends on what 8% means. If the other assets of the banks are loans and mortgages rather than hard assets 8% can be sizable. Fanny and Freddy have $Trillions in assets if you count loans as assets. Pity they have no money..
 
Ronnie 666 said:
hyperinflation said:
banks are only allowed to source 8% capital in the covered market, and since the senior unsecured market has pretty much frozen up for the past 6 months, this is one of the few way left for banks to raise funding without paying through the roof for it.

Its covered by pools of mortgages btw..
Click to expand...

It all depends on what 8% means. If the other assets of the banks are loans and mortgages rather than hard assets 8% can be sizable. Fanny and Freddy have $Trillions in assets if you count loans as assets. Pity they have no money..
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8% of total assets, including home loans, commercial loans, credit cards and other assets.

However, APRA will enforce rules to ensure the banks don't over extend themselves.

APS121 said:
An ADI must notify APRA in writing, as soon as practicable after it becomes aware that the value of assets in cover pools securing covered bonds issued by the ADI exceeds, or will exceed, 8 per cent of the value of the ADI's assets in Australia (or such other percentage as may be prescribed in regulations pursuant to section 28 of the Banking Act). Such notification must include the value of the assets in the cover pool, the amount in excess of the specified percentage, reasons for the excess and an indication of the ADI's plans and a proposed time frame in which assets held in the cover pool may fall below the specified percentage
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Source: APS 121 Draft ( http://www.apra.gov.au/adi/Documents/Draft Prudential Standard APS 121 20111101 v1 3.pdf )

So if the property market gets crushed and suddenly ANZ's assets on the books dropped by 40% they would have to report to APRA and steps will be taken to ensure they clear off some of their covered bonds to remain below 8% of total assets. Also, as long as ANZ does not default on their repayments it shouldn't affect anybody but ANZ's shareholders and profits.

APS121 said:
An ADI must ensure that documentation associated with a covered bond issue does not permit covered bond holders to make a claim on the covered bond special purpose vehicle or the cover pool unless the issuing ADI has defaulted on its obligations under a covered bond secured by the same cover pool.
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Why couldn't this have been posted up before my exam on covered bonds/SPV and APS IRB risk management etc... would've made studying so much more interesting :lol:
 
Ronnie 666 said:
hyperinflation said:
banks are only allowed to source 8% capital in the covered market, and since the senior unsecured market has pretty much frozen up for the past 6 months, this is one of the few way left for banks to raise funding without paying through the roof for it.

Its covered by pools of mortgages btw..
Click to expand...

It all depends on what 8% means. If the other assets of the banks are loans and mortgages rather than hard assets 8% can be sizable. Fanny and Freddy have $Trillions in assets if you count loans as assets. Pity they have no money..
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8% capital mean 8% of the banks funding (laibility side of the balance sheet), which consists of:

Deposits
Covered Bonds
Senior unsecured bonds
Subordinated bonds
Preference Shares/Perpetual bonds
Ordinary shares

Also the fact that covered bonds are secured by mortgages means that as long as ppl dont default en-masse, then all is good.. nothing to do with the prices of the underlying houses. And if there is a mass default on the morgages, the Covered bonds take precedence in payout to all other debt (except Deposits, which are Gov Guaranteed)
 
hyperinflation said:
8% capital mean 8% of the banks funding (laibility side of the balance sheet), which consists of:

Deposits
Covered Bonds
Senior unsecured bonds
Subordinated bonds
Preference Shares/Perpetual bonds
Ordinary shares

Also the fact that covered bonds are secured by mortgages means that as long as ppl dont default en-masse, then all is good.. nothing to do with the prices of the underlying houses. And if there is a mass default on the morgages, the Covered bonds take precedence in payout to all other debt (except Deposits, which are Gov Guaranteed)
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SMH says it's total assets not regulatory or economic capital or tier 1 cap etc so I don't think it's total capital but total assets.

If it's merely 8% of total capital then I highly doubt they will be able to issue up to 160 billion dollars of covered bonds. I mean, our banks have 2 trillion in capital? what? :P

Agree with the part of not defaulting, as long as not everybody defaults at once doesn't matter if house prices go up down or sideways, ANZ and other banks will have reserves for doubtful debts. Their profits might take a beating but they won't need a bailout.
 
fishball said:
SMH says it's total assets not regulatory or economic capital or tier 1 cap etc so I don't think it's total capital but total assets.

If it's merely 8% of total capital then I highly doubt they will be able to issue up to 160 billion dollars of covered bonds. I mean, our banks have 2 trillion in capital? what? :P

Agree with the part of not defaulting, as long as not everybody defaults at once doesn't matter if house prices go up down or sideways, ANZ and other banks will have reserves for doubtful debts. Their profits might take a beating but they won't need a bailout.
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Total assets = Total Liabilities + Equity

They probably will not issue 160bio of covered this year, but over 10 years, I don't see why not. Many Canadian and Scandinavian banks have 10s of billions of covered bonds on issue, and their economied/populations aren't that much bigger than ours
 
Makes you want to go out and buy just a few more ounces of physical... doesn't it?
 
Covered bonds are a fix for funding issues that aren't going to go away for quite a bit of time. a five year bond now would need to be rolled over at a really bad time I suspect. If housing price do continue to be under pressure the banks could be facing a double whammy down the track.
 
Never mind their exposure of 15 Trillion ("T") in derivatives.

http://barnabyisright.com/resources-articles/tick-tick-tick-aussie-banks-15-trillion-time-bomb/

Its so funny how banks can convert an unsecured loans and mortgages into an asset. I would classify that as potential liabilities.

By the way the Gvt cover on depositors is limited to $250,000 and what I find concerning is that in the event of a bank crash the government will not have the money to cover this. Have you forgotten we are already $200 Billion in the red. Also is the guarantee for the depositors direct or through the banks where covered bonds would have first call.

If this does not encourage you to buy PM nothing will.
 
Ronnie 666 said:
Never mind their exposure of 15 Trillion ("T") in derivatives.

http://barnabyisright.com/resources-articles/tick-tick-tick-aussie-banks-15-trillion-time-bomb/

Its so funny how banks can convert an unsecured loans and mortgages into an asset. I would classify that as potential liabilities.
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A loan/morgage written by a bank is an asset:

It generates cashflow, and will (hopefully) be paid off at then end.
Kinda like putting your money in a term deposit - you earn interest, and (hopefully) receive your money back at the end of the term.

Ronnie 666 said:
By the way the Gvt cover on depositors is limited to $250,000 and what I find concerning is that in the event of a bank crash the government will not have the money to cover this. Have you forgotten we are already $200 Billion in the red. Also is the guarantee for the depositors direct or through the banks where covered bonds would have first call.

If this does not encourage you to buy PM nothing will.
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Deposits are guaranteed direct. For the government to have to cover every deposit in the country, we would be royally screwed that the AUD would be worthless anyway.. however, if one bank went under, then the Gov could quite easily cover the deposits - by issuing bonds at ridicuously low interest rates.

And dont worry.. I have plent invested in PM.. just trying to explain the mechanics of bank debt - i trade this shit every day after all..
 
auspm said:
Makes you want to go out and buy just a few more ounces of physical... doesn't it?
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I get a warm and fuzzy feeling every time I think of of those property titles in the bank vault weighted down by the gold and silver bullion:lol:
 
I can't believe that the big 4 Australian Banks are going down the path of covered bonds..Like Qantas, I'll add them to my list of endangered businesses.

Regards Errol 43
 
At the bus stop here in London there is a bank advert offering "1000 pounds in advance when you deposit 12000 pounds with us." with some fine print and a reference to something like a 3% rate.

I suspect the fine print doesn't mention the strong possibility that your 12k will be worth about 6k when they give give you access to it at some future time, and the 1k in advance will have been swallowed up by some hook in the fine print, and the taxman will be after what's left of it.

In the continuing absence of moral hazard, the banking sector is more and more showing that they should be tarred and feathered and run out of town.

Parasites.
 
hiho said:
Yippe our very own subprime
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Not quite - the difference between covered bonds and mortgage backed securities, is that if a loan in the covered pool defaults or matures, it has to be replaced with another loan, so that the cover pool is maintained

In the continuing absence of moral hazard, the banking sector is more and more showing that they should be tarred and feathered and run out of town.
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And where would you like to keep your money/get a home loan/credit card etc? There is a need for banks, and not all bankers are the scum of the earth they are being made out to be right now.. that label should be reserved for a banks with initials G.S.
 
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