2nd Europe Funding Markets Closed On Debt Turmoil -ANZ Chief
First Published Friday, 18th May 2012 06:47 am - © 2012 Dow Jones
--ANZ chief says European funding markets have "closed again"
--CBA chief says markets preparing for Greek debt default
--Bank funding costs now 30 basis points above average, says analyst
(Adds Smith's remarks on Asian, U.S. funding markets from 5th paragraph.)
By Caroline Henshaw
Of Dow Jones NEWSWIRES
SYDNEY -(Dow Jones)- European funding markets have effectively shut down to Australia's banks, the chief executive of Australia & New Zealand Banking Group Ltd. (ANZ.AU) said Friday, raising fresh concern about the local spillover from the region's debt crisis.
Global equity markets nose-dived this week and Australia's benchmark stocks gauge erased gains for the year on Friday, as fears about the global economy mounted. Panic over the health of Spanish lenders contributed to Friday's sharp fall, and added to nervousness about a capital flight from Greek banks and disappointing economic data from the U.S. and China.
ANZ Bank Chief Executive Mike Smith told a business conference in Melbourne Friday that European funding markets had effectively closed down as fear Greece may be forced to leave the eurozone sent debt markets spinning. Short-term markets had already begun seizing up towards the end of last year as the debt crisis intensified, according to some analysts.
Smith's remarks brought back memories of late 2008, when the collapse of Lehman Brothers sparked a credit crunch that went on to cripple the global economy. However, he noted that the funding difficulties were not as sharp as during the financial crisis that began in 2008.
"Markets are closed again," Smith said. "This is what happens in this sort of situation. While we will see volatility as the European crisis unfolds, the situation is more manageable than 2008 when we had the shock collapse of Lehman's, and Australian banks are well placed right now," he said, adding, "Asian and U.S. markets remain open."
On Thursday, Commonwealth Bank of Australia's (CBA.AU) Chief Executive, Ian Narev, said the banks were already laying out contingency plans in the event of a Greek debt default. CBA reported a 3% increase in cash profits for the latest quarter, but said the bank's margins were hit by higher funding costs.
"I think there's a degree of forward planning for that possibility that would soften any impact," Narev said. "But the impact would still be material."
Rising funding costs have become a key concern for Australia's lenders as slowing domestic loan growth and intense competition for deposits has pressured their profit margins, in spite of cash earnings hitting record levels. Analysts estimate that the banks raise about A$100 billion a year in wholesale funding markets.
Nomura analyst Victor German said in a note this week that the banks' recent offshore raisings were issued at around 160 basis points over swap--some 30 basis points above their average funding costs.
He noted that the so-called big-four lenders in response were turning increasingly to asset-backed covered bonds as a cheaper way to raise funds.
About half of CBA's issuances this year have been covered, while ANZ Bank and Westpac Banking Corp. (WBC.AU) have used them for around 40% of raisings, and National Australia Bank (NAB.AU) for around a fifth, he estimated.
-By Caroline Henshaw, Dow Jones Newswires; 61-2-8272-4689; email@example.com