US house sales rise but confidence falls; Standard Chartered in dumps; German confidence sags; Aussie banks tighten up; UST 10yr yield 1.80%; oil down, gold up; NZ$1 = 66.6 US¢, TWI-5 = 71.2

US house sales rise but confidence falls; Standard Chartered in dumps; German confidence sags; Aussie banks tighten up; UST 10yr yield 1.80%; oil down, gold up; NZ$1 = 66.6 US¢, TWI-5 = 71.2

Here's my summary of the key events overnight that affect New Zealand, with news of another big stumble by a big global bank.

But first in the US, existing-home sales crept higher in January to the highest annual rate in six months and are +11% higher than a year ago. Tight supply levels raised the median home price to US$213,800 (NZ$322,000) and growing +8.2%, its fastest rise in almost a year.

However American consumer confidence has taken a hit in February, according to a survey out today.

In Europe, Standard Chartered, an Asia-focused bank based in London, reported overnight an unexpectedly large loss of -NZ$3.5 bln for 2015 after being pummeled by its exposure to emerging markets and bad loans. It was the latest in a series of weak performances by global banks, amid concerns over a slowing world economy. Standard Chartered also warned that more than 150 current or former executives were at risk of having their bonuses clawed back if they were found to be responsible for the bank’s poor performance. Standard Chartered is a bank about the same size as CBA in assets but far, far less profitable. CBA made a tax-paid profit of almost +NZ$10 bln in the same period.

In Germany, business confidence has suffered its steepest drop since 2008, according to a widely watched survey. The fall, the third in a row, left their index at 105.7 from 107.3 in January, and well below the expected slip to 106.8.

In Australia, the lending screws are tightening. Banks approved fewer new loans for housing investors in the December quarter, wrote fewer mortgages for customers with low deposits, and reduced the number of new loans where borrowers are only paying back interest.

In New York the benchmark UST 10yr yield is marginally higher again, today by +4 bps to 1.80%. Yesterday, local swap rates fell slightly across the curve, with the long end back near its all-time low.

The oil price is lower today, down to US$32/barrel in the US while Brent is just on US$33/barrel. The Saudi oil minister overnight ended the fantasy that oil producers would cut output. He now says market price pain is the more efficient way to force marginal producers out of the market. But he has no idea how long that will take because it seems shale out output gains will be more than cuts OPEC was considering.

The gold price is +US$12 higher today at US$1,225/oz.

The NZ dollar is still range-trading. It is now at 66.6 US¢, at 92.4 AU¢, and at 60.4 euro cents. The TWI-5 will start today at 71.2.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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10 Comments

Take your point David about CBA, but I wonder if one or more of the worlds major banks collapses, just how banks like the CBA would be impacted and to what degree. How much foreign capital have they borrowed to meet local market demand? If their profit was "+$10 bil" why do they need to borrow any at all? What is their exposure? I suspect that no matter how good they look, it is mostly façade in front of a house of cards.

Yes indeed. The share price reflects the inherent issues of one trick pony banking practices.

CBA may have made NZ$10 bln in 2015 but they paid most of that out in dividends (NZ$7.4 bln). So capital is not bolstered as you might think. All banks are vulnerable because of high leverage. CBA has assets of NZ$980 bln but capital of 'only' NZ$65 bln. This will work so long as depositors and lenders have confidence in the situation. But despite the self-promotion, there is no way this balance sheet can be described as 'strong'; to do that you need to buy the argument that 'banks are different'.

Highly leveraged banking is a relatively new phenomenon, essentially from 1999 when Bill Clinton signed a repeal of the American Glass-Steagall act. That unleasehed banking leverage and it spread around the world.

6.7% - doesn't exactly fill one with confidence, does it? And banks really are different, through their sense of entitlement, their ability to manipulate and influence Governments, and the way the law falls in their favour rather than the consumer.

Still the tide might be starting to turn - on an unbelievably long shot the Wanganui Chronicle has an article this morning of a lady in Marton challenging the ANZ over a credit card debt of some size. They want to declare her bankrupt, she says issuing a promissory note meets all requirements. Good luck!

Shareholder capital leveraged 15.7 times by NZ banks, giving effective loan to value ratio for banks of 94%; Kiwibank the worst at 21.6 times
http://www.interest.co.nz/opinion/53444/shareholder-capital-leveraged-15...
Loan to value ratio caps and increased sectoral capital requirements seen as the biggest threats to bank profitablity out of the RBNZ's macro-prudential tools
http://www.interest.co.nz/bonds/63466/loan-value-ratio-caps-and-increase...
BNZ and Westpac ramp up dividend payments; BNZ 1st quarter profit jumps 57%http://www.interest.co.nz/news/68682/bnz-and-westpac-ramp-dividend-payme...
BNZ records 47% of June quarter net residential mortgage growth through high LVR lending
http://www.interest.co.nz/bonds/66005/bnz-records-47-june-quarter-net-re...
BNZ grows March quarter residential mortgage lending by NZ$455 mln with 35% of growth in high LVR lending
http://www.interest.co.nz/property/64634/bnz-grows-march-quarter-residen...
IRD wins in massive tax case against BNZ; ominous sign for other big 3 banks
http://www.interest.co.nz/news/44534/ird-wins-massive-tax-case-against-b...
BNZ may more than double size of NZ$3 billion covered bonds programme; says depositors' secure
http://www.interest.co.nz/news/51354/bnz-may-more-double-size-nz3-billio...

whoa, AndrewJ, those are old links. The updated one is here http://www.interest.co.nz/saving/bank-leverage

At least you lot have been on the case for a long time.

In Europe, Standard Chartered, an Asia-focused bank based in London, reported overnight an unexpectedly large loss of -NZ$3.5 bln for 2015 after being pummeled by its exposure to emerging markets and bad loans.

Investors are running out of patience with European bank chieftains, and no wonder. Since the fall of Lehman Brothers in September 2008, eight of Europe’s biggest banks have announced layoffs adding up to about 100,000 employees, paid $63 billion in legal penalties, and lost $420 billion in market value. In 2015, Deutsche Bank lost a record €6.8 billion ($7.6 billion). In mid-February the industry suffered an epic selloff as subzero interest rates, China’s slowdown, the oil crash, and looming regulatory and litigation costs triggered an outbreak of fear not seen since the fall of 2008. Just last year new CEOs took over at Barclays, Credit Suisse, Deutsche Bank, and Standard Chartered. Read more

JPM delivered another big surprise to shareholders when it reported that revenue in the bank's critical investment banking group are set to plunge by 25% in Q1 from a year ago. Read more

More of a personal observation than one of hard facts but having businesses which banked with both Standard Chartered Bank in Hong Kong and CBA in Australia, the difference was like cheap chalk and a nice cheese. Standard Chartered's internet platforms were either antiquated or extremely limited and there was so much paper involved.

I spent so many hours working on issues with that bank that I will never get back including a visit to a Hong Kong branch office in Lai Chi Kok where I was still shaking after the two hour "meeting". In my experience, Standard Chartered is the "World's Worst Bank".