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Gareth Vaughan on big banks' loan impairments, hotels for a post-COVID-19 world, a business opportunity for criminals, the anti-vaxxer threat to a COVID-19 vaccine & the end of neo-liberalism

Gareth Vaughan on big banks' loan impairments, hotels for a post-COVID-19 world, a business opportunity for criminals, the anti-vaxxer threat to a COVID-19 vaccine & the end of neo-liberalism

This Top 5 COVID-19 Alert Level 2 special comes from's Gareth Vaughan.

As always, we welcome your additions in the comments below or via email to And if you're interested in contributing the occasional Top 5 yourself, contact

See all previous Top 5s here.

How's level 2 treating you? I certainly enjoyed getting a haircut and eating dinner out on Friday. And the kids go back to school today. But getting stuck in heavy traffic coming home from visiting my parents on Sunday wasn't so good. Can we have level 2 without traffic jams?

1) More to come from big bank loan impairments and provisions.

In covering the recent interim reporting season for Australasia's big banks I was focused on their credit impairments and loan provisions, and importantly the assumptions behind them. The reasons for this were detailed in this article, which was a results preview story hastily rewritten as BNZ's parent National Australia Bank (NAB) issued its interim results 11 days ahead of schedule.

Because of what's known as International Financial Reporting Standard 9, or IFRS-9, the banks are required to take into account their future expectations. That means factoring in their expectations of future economic conditions and loan losses. In the benign credit environment prior to COVID-19 this wasn't too exciting. But in the tipped upside down COVID-19 world, everything changed.

In their bank results wrap Citi's Australian banking analysts Brendan Sproules and Thomas Strong have done a nice job of summarising this aspect of the results. Covered are the ANZ NZ's parent the ANZ Bank Group, ASB's parent Commonwealth Bank of Australia (CBA), BNZ's parent NAB, and Westpac NZ's parent the Westpac Banking Corporation (WBC).

The upshot is things will probably get a lot worse from here.

Each of the Major Banks made economic loan loss estimates for the impact of COVID-19 on their current loan books. The common theme across these estimates was that all the banks painted the weakest economic conditions since the 1930s. Despite this outlook, the estimated losses are very mild relative to recent economic downturns in Australia.

We expect that COVID-related loan losses over the next 3 years will be higher than the collective provision adjustments made in these results. Balance sheets will grow giving rise to more loan loss provisions, but expected loss rates on the existing book is expected to [be] higher than what was presented by Banks in these results.

*GLA is gross loans and advances.

2) Hotels for a post-COVID-19 world.

In a report laced with an array of eye catching pictures, Bernstein analysts Richard Clarke, Harry Martin and Pranavi Agarwal take a look at what hotel stays might look like post-COVID-19. In terms of making rooms easier to clean, they suggest several changes are likely, as shown in the picture below. The Bernstein analysts point out much of this is already standard practice in limited service hotels, but implementing such changes in luxury hotels whilst retaining a luxurious feel, could pose some challenges.

They have some interesting things to say on peoples' concerns around potential atmospheric virus transmission.

...[another thing] we think consumers will demand is reduced risk from atmospheric transmission. Up to now we expect few hotels have picked up guests on the message of first-rate ventilation systems or high quality water filtration, but this is perhaps going to change.

One likely innovation is negative pressure rooms, which will mean air from a room (where an infectious person might be staying) cannot get into the corridors.

We would also expect that this aspect means that guests will want to reduce interaction with staff and fewer staff to pass through their rooms. This likely means contactless room service (potentially using robots) and will mean your room is unlikely cleaned every day.

For a more luxurious stays, where daily cleaning is more required, the very technology that enables the guest to control the room's facilities can also be used to track if someone is in the room or not so that cleaning can proceed only if it is vacant.

They also point out the obvious. Buffets are off the menu.

The general manager of the Four Seasons New York has said "I think it's safe to say that breakfast buffets and communal tables and the kind of things that had been traditions at many hotels are going away, for who knows how long". Buffets are likely to be replaced with take away picnic baskets per table or simply become a la carte or set menu. The good news is that this will lead to less food waste.

I mentioned eye catching pictures. These include ones of quarantined dining in small glasshouses in Amsterdam where waiters are wearing transparent face shields and gloves, glass dividers between tables in Italian restaurants, and designated standing areas in lifts. And what about those famously crowded European beaches this northern summer? They probably won't be as crowded as normal. But as the pictures below from the Bernstein report show, some including Italian manufacturing company Nuova Neon Group 2, are prepared for virus concerns and the need for social distancing.

3) A business opportunity for criminals.

For most of us COVID-19 has caused a pandemic and a major developing economic downturn. For others it has created opportunity. Some of these seeing opportunity are criminals. According to staff at the Financial Stability Institute (FSI), part of the Bank for International Settlements, criminals are exploiting vulnerabilities created by COVID-19 lockdowns, increasing the risks of cyber attacks, money laundering and terrorist financing.

A third of the world’s population is in coronavirus lockdown. An estimated 300 million office workers globally may be working from home, including up to 90% of banking and insurance workers. Most of these staff log into their firms’ sites remotely, attending meetings using teleworking arrangements, and/or accessing non-public data online – sometimes via home computers and private devices. Since the customers of most financial institutions are also staying at home, doing financial transactions online has become not just a convenience but a necessity.

The lockdown increases the scope for criminals to exploit vulnerabilities and commit financial crime. The increased online presence of virtually everyone has led to new, and in some cases more naïve, targets for online fraudsters. Work-from-home arrangements with remote access to corporate networks have significantly expanded the attack surface for cyber criminals. Money launderers can also take advantage of the increased need for financial institutions to identify and onboard their customers online.

I haven't heard any specifics of New Zealand financial service providers being targeted during our lockdown period. But there's no reason why things would be different here to the rest of the world. 

Data show that Covid-19-related cyber threats are increasing. For example, Carbon Black (2020), a cyber security company, noted that ransomware attacks had increased 148% in March 2020 over baseline levels in February 2020. Among the different sectors, the finance sector was the top target, with a 38% increase in cyberattacks against financial institutions. Similarly, the Financial Services Information Sharing and Analysis Center (2020) identified over 1,500 high-risk domains (ie those likely to have been set up by threat actors) created on or after 1 January 2020 containing both a Covid-19 and financial theme. Google (2020), meanwhile, reported 18 million daily malware or phishing emails related to Covid-19 in early April 2020, which was in addition to more than 240 million Covid-19-related daily spam messages. This is consistent with the findings of Mandiant Threat Intelligence that indicate coronavirus-themed malicious emails reached their highest observed volume on 13 April (Figure 1 provides a relative scale of the volume of coronavirus-themed malicious emails).

4) The anti-vaxxer threat to a COVID-19 vaccine.

Amid the uncertainty of the COVID-19 pandemic - how bad will the impact of the virus be and how long will it last for - one thing is sometimes touted as the ultimate silver bullet solution. A vaccine. But as Kevin Roose writes in The New York Times, given how many anti-vaxxers are out there, this is no forgone conclusion.

I’ve been following the anti-vaccine community on and off for years, watching its members operate in private Facebook groups and Instagram accounts, and have found that they are much more organized and strategic than many of their critics believe. They are savvy media manipulators, effective communicators and experienced at exploiting the weaknesses of social media platforms. (Just one example: Shortly after Facebook and YouTube began taking down copies of “Plandemic” [a documentary that went viral on social media] for violating their rules, I saw people in anti-vaccine groups editing it in subtle ways to evade the platforms’ automated enforcement software and reposting it.)

In short, the anti-vaxxers have been practicing for this. And I’m worried that they will be unusually effective in sowing doubts about a Covid-19 vaccine for several reasons.

As Roose notes, anti-vaxxers are often also conspiracy theorists. The United States appears to be the global headquarters of these groups. The Atlantic has a look at this in a series here, suggesting the US owes its existence, at least in part, to conspiracy thinking.

In the colonies, a theory was born that King George III was plotting the enslavement of all Americans. Even without evidence, this theory helped tip the scales toward revolution.

Below, signs that may become more familiar to New Zealanders if we do get an ANZAC travel bubble.

5) The death of neo-liberalism?

Remember Rutger Bregman? He's the Dutch journalist and historian who castigated the super wealthy at Davos last year about not paying enough tax (see below). Now, in the Correspondent, he's calling time on neo-liberalism.

Among other things Bregman discusses the rise of neo-liberalism, the global financial crisis, and the work of economists Thomas Piketty and Mariana Mazzucato, and tax expert Gabriel Zucman. Mazzucato, he notes, probed the state's role in major innovations including the iPhone, medical breakthroughs and the 1960s Space Race. Whether COVID-19 is the death knell for neo-liberalism remains to be seen. But it has certainly ushered in a period of greater government involvement in our lives and in the economy.

Another of Mazzucato’s friends, US economist Stephanie Kelton, adds that governments can print extra money if needed to fund their ambitions – and not to worry about national debts and deficits. (Economists like Mazzucato and Kelton don’t have much patience for old-school politicians, economists, and journalists who liken governments to households. After all, households can’t collect taxes or issue credit in their own currency.)

What we’re talking about here is nothing less than a revolution in economic thinking. Where the 2008 crisis was followed by severe austerity, we’re now living at a time when someone like Kelton (author of a book tellingly titled The Deficit Myth) is hailed by none other than the Financial Times as a modern-day Milton Friedman.  And when that same paper wrote in early April that government “must see public services as investments rather than liabilities”, it was echoing precisely what Kelton and Mazzucato have contended for years.

But maybe the most interesting thing about these women is that they’re not satisfied with mere talk. They want results. Kelton for example is an influential political adviser, Perez has served as a consultant to countless companies and institutions, and Mazzucato too is a born networker who knows her way around the world’s institutions.

Bregman certainly wants change.

One thing is certain. There comes a point when pushing on the edges of the Overton Window is no longer enough. There comes a point when it’s time to march through the institutions and bring the ideas that were once so radical to the centres of power.

I think that time is now.

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There's nothing new about antivaxxers - one of my 2nd great grandfathers was fined for refusing to have his children vaccinated against smallpox, back in the 1880s.


Rampant population growth is utterly disgusting to me. Most countries should adopt a population reduction strategy to preserve earth for future generations. There is no requirement for human breeding from any rational standpoint and it should be firmly discouraged.

Try telling that to the Pope

Religion has a lot to answer for! :)

Can you name a 1st-world country in which the average woman bears at least 2.1 children AND where the highly fecund in that country are not 3rd-world immigrants? Even the birth rates of India (2.2 children per woman) and in Mexico (also 2.2) are BARELY above replacement level.

Efforts to reduce "human breeding" must logically be focussed on those nations with the highest fertility. Is that what should be done?

This has been the fastest million added to New Zealand’s population ever. The irony of this is that it is New Zealand’s low population density and relatively small population that has enabled the country to succeed (thus far) in containing and controlling the viral pandemic.


In resources-per-head terms, less people the better.

Only ignorant people - ones choosing not to count resource stocks, choosing instead to count artificially-issued, related-to-nothing tokens - could have even suggested that having more people was better.

I agree. The problem is that most economists and politicians want (and some believe possible) and endlessly growing population.

When did New Zealanders vote to have their national ethnically modified through immigration?
Note: I am not judging ethnic modification to be a good or a bad thing. It's just that citizens should be involved in decisions that will permanently alter their societies.

The problem with a vaccine isn't anti vaxxer hipppies it is rather the simple fact there are no vaccines to date for corona viruses. So don't hold your breath on the silver bullet solution.
"I said we would throw everything we could at finding a vaccine. There remains a very long way to go, and I must be frank that a vaccine might not come to fruition."

Let's abandon hope when we know the situation is hopeless. Until then - why worry?

Speaking of banks I notice that Warren Buffett's Berkshire Hathaway has now sold out of the Goldman Sachs he has held since the financial crisis (along with his holding of Phillips 66 oil and Travellers insurance). This is in addition to the airlines that where widely discussed a few weeks ago. He is now very deep into cash and equivalents.

I guess he figured people won't be moving around much. He took quite a loss selling those airliners.
Tourism is dead for at least couple of years.

re: 5

His 2005 book is: The Collapse of Globalism (and the reinvention of the world). Well worth the read.

Interesting to see that essentially WBC economists are predicting a considerable sharp dip in house price of -15% in CY20 then flowed by -5% in CY21. Technically that's a property crash (-20% drop) over a two year period, which is similar to what happened during the GFC. Think of it in a positive light and it's just a property price correction to put them in line with local wage earners.

Yes I think globalism in its current format is in the early stages of being disrupted. Some won't like that. Tough. We have different concerns for different reasons than we had 4 months ago. It will, I believe, have the impact of slowing things down a bit, which will not be such a bad thing. Time to think things through perhaps, before we rush off to the cheapest manufacturer. Sure, it'll be a tough 6-12 months as everyone resets there new living arrangements, but who knows, maybe our borders will actually become borders again.

Well said. Perhaps we could start by asking what the true costs of things are, and whether we owe remote makers of phones etc, a wage rather than serfdom. Ultimately, wages should not be a national advantage - that's just varying degrees of slavery.

So we should make more here, and pay for it at our wage-level. As well, we should be valuing depleting resources as if they are depleting and as if the seventh generation hence could have the same resource-rights we currently do.

Good time for a stocktake, so to speak.

Yes and to ensure that Kiwi's are able to afford a home and good life style on NZ resident wages, we need to ensure that the balance is not shifted back in to the false economy that only profits the very wealthy older generations and allows foreign owners to park their dodgy money. That just skews our economy and distorts it, something that the National party would love to do again for their own profit.

#3 a small and necessarily anonymous local example. Over 1000 authentication requests received on a cell-phone, being the second factor necessary for a two-factor authentication challenge issued by a site. This means that the first factor - password for remote access - had been cracked or hacked - by persons or organisations unknown and almost certainly maleficent.. Naturally, no responses were made to the phone challenge.

Kool-aid alert:

Vaccines are a nice earner for US Pharma, they only need limited testing as they cannot be sued for damages.

Flu vaccines are only between 20 to 60% effective according to the CDC website.

I would not blindly trust the vaccine propaganda. There are powerful interests behind it. Smoke and mirrors abound.

Yeah, well, I don't trust people on the internet who say "There are powerful interests behind it. Smoke and mirrors abound."

I agree Roger, there's a lot of money to be made.
In case anyone thinks I'm an anti-vaxxer, my kids and grand-kids are all vaccinated, it's just that the amount of kids with autism is sky-rocketing, and nobody seems to worry about it.
When I was young the word autism was unheard of, same with asthma, I hardly anyone was suffering from it.
So, what's happened... makes one think.
Then I came across this talk and like to share it with you all.


Ivy league doctor Paul Thomas MD pleads with fellow pediatricians.

The vaccine market is not where "Big pharma" makes its considerable profits.
The posts above are antivaxx conspiracy theory bullsh*t and have no place on this website, but I suppose everyone is a bloody expert now after watching a few youtube vids by antivaxx quacks like Thomas.
So you think autism is a recent "problem?"
That would have been news to Sir Issac Newton's mother who was a few hundred years too early to blame her sons autism on the MMR vaccination.

5) Good on him. That latest article of his is really good too.

Why do we always need to be put in categories? Antivaxxers vs provaxers? It is never black and white.
I am immunised, my children are, if I travel to India I will get whatever is required, but I am not going to agree to receive a vaccine against Covid-19. Simply because this is a virus that has run its course around the world, is now very weak and is dying off as all respiratory viruses do. Possibly it mutated too, so no vaccine will work against that. On another note, the overall immunity and lifestyle are on in my favour to not to need it.
So which category do I belong then?

This is about the most stupid thing I have read today.
New Zealand has indeed escaped a bullet, but it is arrogant to assume SARS-CoV-2 is "very weak" and is "dying off". Any Brazilian will refute this nonsense as their official daily death rate approaches 4 figures.
I have seen what this virus does first hand to kill its victims. Do not underestimate its infectivity and its virulence.