net interest margin Archives - the patient investor %

November 6, 2012

Australia: Hard or soft landing?

Browsing the latest charts from the RBA.

Despite record low 10-year bond yields…..

Housing Finances

Credit growth is subdued and likely to remain so for some time.

Credit Growth by Sector

After a massive credit bubble lasting more than a decade.

Housing Finances

Households are saving close to 10 percent of Disposable Income in anticipation of a contraction.

Housing Finances

While banks are reluctant to lend when their margins are being squeezed.

Housing Finances

Borrowing offshore is not an option. That is how we got into such a fix in the first place.

Housing Finances

Makes me believe we are unlikely to see another housing boom for some time.

There are two possible outcomes: a soft landing and a hard landing.

It all depends on whether Wayne Swan and the RBA know their jobs.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.

Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.

Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.

October 3, 2012

Australia: RBA overview

A quick review of the RBA chart pack released today.

Household finances remain in a precarious position with debt at 150 percent of disposable income — three times the level of the early nineties.

Index

Housing credit growth slowed to around 5 percent, but will probably fall further by the end of the cycle — following personal credit into a contraction — in order to reduce the debt to disposable income. Declining growth rates leave a hole in aggregate demand but this is being offset by rising business credit.

Index

Bank capital ratios are improving but these are based on risk-weighted assets. As Deep T pointed out last year:

“……..the average minimum amount of Total Capital against total residential assets held by those [the 4 major] banks is less than 2%.”

They still have a long way to go to build sufficient reserves to withstand a collapse of the housing bubble, brought about by household deleveraging.

Index

Bank interest margins are being squeezed, making them reluctant to expand their balance sheets. Further decline in net interest margins could precipitate a credit contraction.

Index

Bulk commodity prices are falling but the full impact of the sharp drop in iron ore spot prices has not yet been felt on the current account and government tax revenues.

Index

The current account trade balance is improving but, as a net debtor, interest and dividends to offshore investors drag the country into deficit. As David Murray points out: the fact that Australia was unable to post a current account surplus throughout the mining boom indicates we are living beyond our means and will lead to burgeoning debt levels.

Index

Colin Twiggs

Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.

Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.

October 19, 2011

A year later everyone is catching on about Fed policy and net interest margins | Credit Writedowns

“As I wrote in April: If long rates are largely determined by expected future short rates, the longer short rates are at zero percent, the lower long rates will go. That’s toxic for bank interest margins…..

Now that we are seeing more movement down on net interest margins (BofA and Wells Fargo both showed margin compression for example), the mainstream media is finally catching on to the connection between Fed policy and net interest margins. You heard it here first though.”

via A year later everyone is catching on about Fed policy and net interest margins | Credit Writedowns.

October 18, 2011

Wells Fargo’s Margin Slips – WSJ.com

At Wells Fargo, based in San Francisco, net interest margin fell to 3.84%, the fourth consecutive decline. Wells Fargo blamed the problem on its inability to lend enough of the deposits pouring into the bank. The decline overshadowed a 21% jump in third-quarter net income, which rose to $4.1 billion, as Wells Fargo’s deposit base expanded and nonperforming assets fell. It said its growth in loans and capital was “solid.”

Wells Fargo shares sank 8.4%, or $2.25, to $24.42 in New York Stock Exchange composite trading at 4 p.m.

via Wells Fargo’s Margin Slips – WSJ.com.