The Sunshine State at Sunset

Surfers



Last month, I wrote about the staggering $2.4 billion losses by Lloyds Bank on their Australian real estate adventures and asked ‘Was Lloyds Bank the ONLY silly lender in Australia?’

Today, the Bank of Queensland posted their half-year report, showing losses of $91 million after providing $327m for bad and doubtful debts. They attributed this to “troublesome property loans”, saying:

“The Bank underwent a review of its commercial loans portfolio and provisioning approach increasing specific provisions for the period. The additional specific impairment expense that has arisen has been primarily due to the continued decline in commercial property prices in Queensland.

“Collective provisions increased significantly providing greater coverage for potential impairment expenses. This increase included $160 million in overlays created to cover the impact that the decline in property prices may have on loss given default ratios in the collective provisioning model.”

BoQ has $40 billion in assets, overwhelmingly real estate mortgages in Queensland, with similar lending in other states. The provision is for less than 1 per cent of assets and a far cry from the 50 per cent ‘haircut’ Lloyds took.

BoQ is currently raising an extra $450 million in capital to support their balance sheet as its share price languished just above decade lows. The discounted raising dilutes existing shareholders who ought be very angry.

Brisbane residential real estate prices fell a mere 6.9 per cent in the year to December 2011 (BoQ reported to 29 Feb ’12). Commercial land price falls have been much bigger as development projects are deferred indefinitely and the price of vacant land slashed.

Prosper forecasts major price falls beginning this year that dwarf the change so far. If BoQ writes big losses and needs capital due to falls so far, what shape will the bank be in when the big corrections start?

1 Comment

  1. Paul19-04-2012

    With the big 4’s interest rate rises being blamed on increased funding costs, in a world where interest rates are zero % in many markets, surely that is a red flag that increased risk is being priced in by those providing the funding!

    With credit growth in Aust at the lowest level since records began 35 years ago, a 22.5% increase in repossessions, a 41% increase in mortgagee sales and sales volume at a 15 year low, and a 10 month backlog of listings, what are the chances these banks aren’t already suffering margin calls? How long can they all continue announcing $1.5B quarterly profits? Not much longer I suspect!

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https://prosper.org.au/2012/04/18/the-sunshine-state-at-sunset/