Not so in Australia...our exposure to sub prime was/is comparatively small.
None of our banks needs to be bailed out.Liquidity is a little tight.Thats not a bad thing.
The banks are solid...the real estate market is solid.The dole Qs havent lenghtened...nor will they lenghten appreciably over the next 12 months.There will however be a reallocation of labour.
Not all hunky dory.
ANZ, CBA, NAB and Westpac must come clean about their riskier exposures, especially in credit default swaps (CDS), Michael West writes
CDS and Aussie banks
A Citibank report from mid-July shows ANZ at the top of the CDS pile in Australia. It had $45.7 billion worth of CDS in its conduits.
While all the banks used CDS to hedge their credit risk, ANZ actively traded them.
In other words, as with its primacy in stock lending (of Opes Prime fame), it took the greater risks.
As of March, the bank had some $23.4 billion in ``long'' CDS positions and $22.3 billion in ``short'' CDS positions.
``ANZ entered short CDS positions with counterparties who desired credit protection whilst simultaneously purchasing offsetting protection for a cheaper premium from different counterparties (we understand these counterparties were "monoline" insurers on around half of all occasions). The spread differential between the short premium and long premium generated trading income,'' says the Citibank report.
When one such monoline insurer, ACA, was downgraded from investment grade to CCC in February 2008, ANZ was forced to recognise a provision of $226 million based upon a $1.5 billion notional contract value.
``In effect, they were saying that the long leg of the trade was not suitable in terms of providing insurance - as the rating of the insurer was sub-investment grade the hedge was no longer viable.''
As with other financial stocks now underperforming their peers, ANZ partied hard in the good times by indulging too much in high-yield securities. Now it is clear they were not high-yield for nothing.
Its rivals carry risk but not to the same degree.
CBA has $5.9 billion ($3 billion bought and $2.9 billion sold), Westpac has $4.9 billion ( $4.9 billion sold and $0.1billion bought) and NAB, which Citigroup rates second to ANZ on risk has $24.4 billion in CDS ($13.7 billion and $10.7 billion).
Next Tuesday (PM) is pay up time. I wonder if Any Aussie banks will have to pay up?
Fears of Lehman's CDS derivatives haunt markets - Telegraph
Those on the wrong side of these Lehman debt contracts - known as credit default swaps (CDS) - must come up with the money by Tuesday, the next D-Day in the ever-fraught calendar of the credit markets. There has been a deafening silence so far.
There is no easy way of finding out who they are, so every bank and insurer is suspect. The $55,000bn CDS market is "completely lacking in transparency and completely unregulated" in the words of Chris Cox, the chairman of the US Securities and Exchange Commission.
The settlement auction on Lehman CDS contracts last week was in itself a bombshell. Creditors retrieved just nine cents on the dollar from the Lehman wreckage. As Naked Capitalism put it, the bank had "vaporised". The biggest players at the auction were Goldman Sachs and Deutsche Bank but they were almost certainly transacting for clients.
The insurers of the debt -- a third are hedge funds -- will have to pay 91pc of the $400bn in contracts.
The Depository Trust and Clearing Corporation says the risks have been exaggerated in headline scare stories, insisting that the total sum to be paid will be closer to $6bn. It says most positions are "netted out".
"That's not credible," says Andrea Cicione, credit chief at BNP Paribas.
"They keep coming up with these number by 'netting' but we think the amount is going to anywhere from $220bn to $270bn. The chain broke in the CDS market when Lehman Brothers went down. We may now see other counter-parties defaulting," he said.
Full steam ahead for Australia?
The East is in the Red: the white-knuckle ride begins | smh.com.au
Traders who had been selling iron ore at around $US200 a tonne on the Tangshan spot market were struggling this week to make a sale at $US80. The Newcastle spot price for power-generating coal has plunged from nearly $US200 to $US110. Copper has fallen more gradually, by one half, and nickel by three-fifths. This week Rio Tinto's chief executive, Tom Albanese, shocked the London and Sydney stock exchanges by being the first major mining executive to warn that China would not recover before year's end.
"No, I did not predict the carnage at the moment," says Jim Lennon, Macquarie Bank's respected head commodities analyst. "Last week was the first time since records began that the Chinese spot market price for iron ore went below the Australian long-term contract price. The freight market has imploded. We've declared force majeure on the global commodities super-cycle."
Resource price rises that directly injected 2 or 3 percentage points of additional income into the Australian economy each year are swinging into reverse. "As the resources boom unwinds it will do significant damage to Australia," says Kieren Davies, a leading economist at ABN Amro. "The fall in national income will flow to weaker company profits and weaker business investment and cascade through the economy."
Most of the hundreds of Australian mining companies that have sprung up at the tail end of the resources boom will not survive. "A lot of the junior miners will run out of cash and go into liquidation as they will be unable to raise funds," says Linda Liu Bearne, an investment consultant whose clients include China International Capital Corporation, China's largest investment bank.