Plenty of people in markets and politics have been decrying the market reaction (or overreaction) to the Brexit vote, especially in Australia, 15,000 kilometres away from Britain and the European Union. But that’s ignorance at work, because they fail to look at our most exposed group: those big four banks and the nearly 40% of their funding they borrow each year from offshore.
Those credit lines remain viable, partly because Australia still has a triple-A credit rating, unlike Britain, which lost its last rating from Standard & Poor’s overnight; its rating was lopped two notches to AA, with a negative outlook, and Fitch knocked one notch off its rating to the same level, also with a negative outlook, meaning more cuts ahead. But the most worrying development wasn’t related to Brexit (and this why we should worry in Australia).
But the Italian banks will be the first victims of Brexit, and rescuing them will be important for Australian banks because if an Italian bank wobbles and has to be rescued in emergency circumstances, it will be Lehman Brothers replayed, with credit banks freezing and the Reserve Bank of Australia’s Committed Liquidity Facility being triggered to keep our banks liquid and able to operate.
[Brexit — the shockwaves spread out from a departing Britain]
The Italian government let slip that it is going to ask for EU exemption on state aid rules to allow it to inject up to 40 billion euros into the country’s struggling banks. A move several months ago to set up a good/bad bank arrangement to handle dud loans held by the banks has failed, even though 10 billion euros was set aside. The banks have 200 billion euros of dud loans, of which an estimated 85 billion are considered to be so bad they have little or no value.
The share price of Italian banks crashed for a second day overnight, with Intesa Sanpaolo off 12.5%, and falls of 12% for Banca MPS, 10.4% for Mediobanca, and 8% for UniCredit. These lenders have lost a third of their value since Britain’s vote on Thursday of last week.
UK bank shares are also under pressure, especially the government-controlled RBS and the partly controlled Lloyds. Barclays, the independent UK banking giant, has had its value fall 37% on Friday and Monday.
CYBG Plc — the UK bank once owned by the National Australia Bank, but now a separate company listed in Australia and the UK — has quickly emerged as a bellwether for the UK crisis in Australia; its shares slumped by more than 26% on Friday and Monday.
And watch that triple-A rating for Australia. While Moody’s and Fitch have both maintained our triple-A rating from them (but warned about spending and the budget position in coming years), Standard & Poor’s has been quiet and is understood to be waiting to the election result. It would not surprise some in the markets if S&P issued a formal warning in the next few weeks about Australia’s triple-A rating by putting us on a negative outlook given the huge spending pledges in the campaign (especially from the ALP), coming on top of the Brexit problems.
The government’s election finance audit today will be vital in S&P’s assessment, especially how the $48 billion corporate tax cut will be paid for in coming years. Both Moody’s and Fitch have already pointed to the need for more revenue as well as spending controls.
Moody’s, in fact, pointed out (after giving the 2016-17 budget a qualified tick) that the slower pace of fiscal consolidation (moving back to a surplus) had left the economy vulnerable.
“However, a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks, in particular a potential marked downturn in the housing sector and a reversal in currently favourable external financing conditions.”
We now have a looming crisis with Brexit, and if that spreads to the banks then the crisis becomes very real for Australia.
Let’s face it..S&P and Fitch and their ilk are merely stooges for those criminal banksters who control the global economy.
Via this Brexit move, we’re now also witnessing the destruction of the old Centre Left V Centre Right faux politics in the UK, which will result in a new political system to replace the current one assembled & financed & controlled by the international Wall St/Bank of England/European Central Bank criminal banksters.
The EU empire & its phoney Brussels all-powerful, unelected ‘government’ is facing its demise..and thankfully with it the demise of US controlled NATO war mongering against Russia.
It will be very interesting to see how the banisters try to slow down the EU’s demise after Brexit.
One phony, bankster controlled war mongering empire starting to crumble…and one to go……bring it on!!!!!
“Let’s face it..S&P and Fitch and their ilk are merely stooges for those criminal banksters who control the global economy.”
Bingo, big Kev. These are the same lacky’s who ticked all the boxes for the derivatives market players and collateralized debt obligations that gave us the GFC. How can they be taken seriously?
” It will be very interesting to see how the banisters try to slow down the EU’s demise after Brexit.”
Yep, Brexit is just another implement in the international bankster’s
arsenal to eventually collapse the existing financial system and pave the way for the new beaut global financial system and it’s false messiah. They invented and own this current system, but the problem is they’ll own the next one too. Snakes and ladders and smoke and mirrors.
Agree BT…..but they’ll have to eventually factor in a BRICS challenge to their economic supremacy, which is probably going to arrive around 2020……and then there’s the potential for a monumental confrontation over the economic control of African development……..interesting times indeed.