Hi All,
I see Wetspac has just cut their fixed rates.
For the finance guys (or anyone out there with an opinion..) do you think sort of thing with cutting fixed rates is a pre-cursor to interest rates going down??
Would be interested (pardon the pun) to hear some thoughts..
Cheers
DannyI have awlays thaught that a fixed rate cut means the bank is betting on intrest rates being lower in the future, or at least not rising.
Just my understanding,CATA
Asset Protection Specialist
[email protected]Nope, I think it’s more of a competition thing, as the article states. They’re reducing their margins to try to gain a competetive advantage. They have to do this because they’ve backed themselves into a hole – the vast majority of bank profit over the last few years has been the result of loan approvals, which have now plummetted. You see it’s not like the old times when banks would reap income from loans for years at 10+ percent – these day’s the mortgage debt is packaged up and onsold to, for example, investment banks and superannuation funds.
A bank might choose to lend at 6.8% money they acquire at 5.5%. They could then offload this liability at, let’s say 5.9% (I’m plucking figures here!). The purchasers of this debt see it as relatively high return, relatively low risk investment (how often do banks go bankrupt?… oh yeah, there’s Pyramid, Westpac, Mainline and Cambridge, Bank of Adelaide.. but I digress). Meanwhile the banks are in a fairly risk free situation, scooping their share of money as it flows past.
So, are banks a good investment then? Not quite. You see this system requires a steady stream of new mortgage approvals for the profits to keep flowing, an increase in mortgages to keep on growing etc.
Falling lending figures will absolutely totally without a doubt hit the banks’ bottom lines and hard too. We can expect to see a few signs of this at the next ASX reporting season. Fancy a punt? I’ll likely be buying CFDs to short a couple of our biggest banks just before they issue their profit warnings…[fear]Oh, where was I… Right, so the reason Westpac has cut their fixed rates has bugger all to do with interest rate futures and everything to do with propping up their flaggin mortgage figures.
Cheers, F.[cowboy2]
hi all
yes foundation i think you are right but also I think that all the banks including westpac have squeezed developers to the state that the developers have shifted 9 we have0 to private lenders and I will give you a very simple.
20 unit devel bank lend 6.7 mil bank squeezes developer goes private.
Where do the 20 single lends go not to the bank but to the mortgage originators hence the banks get a double wammie and from me it serves them right.
Of the banks currently westpac, hsbc, cba, and nab (forget about anz)you won’t get building lending thru and you are right they must lend without lending a bank will stop and die.
Rates are important but lending criteria is the most important and the banks have put themselves into a corner that it is very hard to get out of.
If developers don’t use banks (currently they can’t)then they must lend to other markets or area’s hence they chase lowering there margins.
If they go the other way and chase developers they risk more exposure to a market that they have been cutting there exposure too.
They are in a no win situation they must hold and wait and while they wait they are not lending,
it easier for me to get a 225,000.00 credit limit then it is to get a 225,000.00 development loan at the same interest loan it is all to do with exposure.
To understand lending you must be from that market.
Watch this space and see a drop in one of the rates for business finance or equitiy finance from nab, anz or suncorp next.
We live in very interesting finacial times.here to help
I just refinanced..do you reckon they’ll re-consider my loans and give me a cheaper ‘pro-pack’?
seriously..
)REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorIts all about the interbank interest rate swap market…nothing more nothing less.(plus a little bit of margin give up on westpac’s part)
There is a traded market between the banks where they can “swap” fixed rate exposure for floating rate exposure.
They all issue floating rate debt to fund truck loads of thier mortgage to the big super funds and specialist investors and then swap this floating debt out via the swap market to match any fixed rate loans they write. If the bank was to go broke the MBS bonds they issued would not be affected as they are bankrupcy remote funding trusts ie the investors are exposed to the mums and dads paying back the loan ….not the actaul bank.
How do I know this ….because I do it every day for a living and have done so for 12 years.
Hi Danny
Long term rates have no direct bearing wether rates will rise or fall. They are different markets. When rates were 18% in 87/89, fixed rates were cheaper. That was the market prediciting a rate drop but it took 6/7 years to come. This time round, fixed rates are higher that variable rates so the market is predicitng a small rise.
Having said that, what the market predicts is no where near accurate enough to suggest that is where rates are heading (as in 87/89 taking so long to fall).
Yes Home Loans Pty Ltd
Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).Originally posted by Nat R:If the bank was to go broke the MBS bonds they issued would not be affected as they are bankrupcy remote funding trusts
Now this I did not know. Very interesting. Any online reference I can check out to better understand such processes?
ie the investors are exposed to the mums and dads paying back the loan ….not the actaul bank.But this I did…
How do I know this ….because I do it every day for a living and have done so for 12 years.Excellent! Don’t forget to give us all the secret word/nod & wink when we should start shorting the banks….[biggrin]
Thanks Nat,
C.[cowboy2]hi Nat R
Two things make sure you email me before you give the nod and a wink to foundation I like to be at the front of the line.
Second not sure which bank but I would be very interested as I’m looking at lenders nearly every day and need investors with in banks as they can understand my business easier.send me an email and if there are any other bankers or private lending institutions who read this also email me.here to help
Best place to find more info is to read a couple of the Pre Sales Reprost on the Standard and Poors Website.
Note: if a bank issues a bond in its own name then the investors lose out if it goes bad. But if the same bank issues a Mortgaged Backed Bond then the investors are subject to the credit worthiness of the individual loans and the people repaying them.
You will see that the banks are not allowed to use their name or branding on MBS issues but the choose names that sort of link them eg Adelaide Bank issues Torrens Bonds ….St George issues Crusade etc.
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