Aussie banks get another kicking and overnight futures fail to make up for yesterday's falls, up just 33 points on Wall St strength

The ASX 200 fell 80 points (-1.57%) yesterday on the back of a mildly positive lead from Monday's trading in the US, and no news. Investors decided to get (more) nervous about bad corporate debts–as opposed to bad debts in residential housing loans–with ANZ's exposure to potential bad debts leading the way, totalling A$1,389m, according to Macquarie Research, with ANZ now anticipating A$900m of that materialising. Previous to March the markets were factoring in a credit charge figure close to A$800 million. I don't think ANZ is a stand-out in this context (CBA's potential bad debts are around A$1,350m), I just think ANZ did a poor job of pitching the data. Not only have they let the figure creep (forecasts prior to Feb were A$750m, then they upped it to A$800m, and now they've added another A$100m), but they've also issued no context whatsoever in their update. Maybe they don't want to be seen to be playing the game of dressing up bad news, but there was neither a historical average nor a total loan value issued alongside the change in forecast; and, as much as these banks think they're talking squarely to an institutional audience, they should remain conscious of how afraid retail investors are right now.

It is true that ANZ's forecast half year credit impairment charge is expected to be almost that of its 2015 full year (A$1,179m) charge, but this is coming off a period of historic lows among the big four banks in the cycle of defaults. But right now it seems that observers are seek either nirvana or armageddon from this market, and aren't particularly interested in the normalcy and median averages that we're probably moving back to with regard to the credit environment for banks. Don't get me wrong, I don't love the banks, and they're not cheap – yes ANZ is on a single-digit forward P/E ratio (9.52%), but it's annual average earnings growth rate falls well short of that and doesn't make it a compelling buy on a price/earnings growth measure. So I don't advocate holding much of your money in Aussie banks (we don't), but I'm happy to comment on the hysteria over bad debts from time to time.

Despite rises in US shares last night (Dow +0.56%, S&P 500 +0.88%, NASDAQ +1.67%), commodities were lower (crude benchmarks -2.5%, copper -1.5%, iron ore -1.2%) and the cloud of pessimism locally that drove our market lower last night didn't seem to evaporate overnight, with ASX SPI 200 futures rising just 33 points after an unjustified (in the context of global equity index movements) 80 point fall yesterday.

Source: Rivkin, Saxo Bank
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This article was written by Scott Schuberg – CEO, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.