Australia’s banks, fund managers, investment banks and other “advisors” appear to have staged a massive legal raid on the nest eggs of investors and retirees over the past year, extracting billions of dollars from companies and their small shareholders through a deluge of discounted placements and quasi-rights issues.
Although precise figures are difficult to calculate, it appears that some $7 billion was shifted from super funds, retirement accounts and other investments to this coterie of market operators in the June 30 year.
It is further confirmation of the banking industry’s dominance of the Australian economy. Over the past year, amid a bruising credit crisis, the banks applied pressure on companies to raise capital in exchange for debt rollovers. In fact, the amount raised from the market in the year to June was far greater than the amount of new lending by banks to their non-financial customers.
Figures released yesterday by the ASX reveal a record $90 billion was raised in the 2008-09 financial year. That was made up of initial offerings of $1.9 billion (down 83% from the previous year) and secondary share sales of $88.1 billion (up 74%). That compares to the previous record of $77.9 billion raised in 2006-7, which was largely comprised of new floats.
While some of last year’s capital was for expansion — Santos was a good example with its $3 billion dollar raising — most was capital companies had to raise at the behest of their banks as part of an overall refinancing. BlueScope’s $2.2 billion of new capital and debt rollover was a good example.
In the process banks have earned billions in profits through hard-nosed deals on refinancing fees, and investment banks scooped their share by helping raise the money. Some of the investment banks charged fees of 2%-5%, similar to the fees charged by the banks for refinancing the loans. The more risky the company, the higher the fee.
According to some estimates, up to 8% of the $88 billion raised — or over $7 billion — went in fees to banks and investment banks.
In addition, fund management outfits and other big investors like AXA and AMP were able to sell some or all of their discounted shares into the market to make trading profits, while making more fees from the customers whose funds they were managing.
This is after many had also earned fees from lending shares to traders shorting the shares of the companies, such as Fairfax Media, GPT, Mirvac, who needed to raise money.
The $88 billion raised in new secondary issues dwarfs the growth in lending by the banks in the past year. According to APRA figures lending to non-financial companies rose from $479.3 billion in June of 2008 to $496 billion in April of this year, a rise of around $17 billion (It peaked at $503 billion in December).
Look I own commercial property and I am very politically active but I don’t really understand what I have just read twice ! But I did visit the NSW government web site yesterday in place at my expense to inform me about T CORP. Most of the links I clicked were dead ends. Last night I watched the 7 30 Report losses to ratepayers, people like me may be 2 billion dollars. Tell me please that T CORP the NSW government did not invest in derivatives and Collateralised Debt Obligations
BTW I have not renewed my subscription because you seem to have morphed into main stream media !
Why are people surprised? Of course the banks will do this because this is what they have to do. Banks are the ones who have been charged with keeping the money supply going by making loans. They are being encouraged to make loans but at the same time they are being told they must not risk money. Of course they have get companies to raise more capital so that their loans are less at risk. This is NOT a case of the banks profiteering it is a case of the banks doing what society expects of them.
The system is designed to go from booms to busts. If you were sitting down from scratch to design a system that is inherently unstable and essentially random in its outputs you would come up with the current financial system.
It is unstable because to increase the money supply a bank (or someone) must make a loan. To make a loan you need an asset against which to guarantee the loan so the more assets you have the more loans can be made to you. Thus the more your assets increase in notional value the more loans you have. Now once your assets start to drop in value the fewer loans you can have and this will in turn reduce the value of your assets which in turn will reduce the number of loans you can have.
Thus we increase loans when asset prices increase and this in turn increases the money supply. This is called positive feedback and we all know that such systems are essentially random in behaviour because when we decrease loans we decrease asset prices which reduces the money supply. How far up the money supply goes and how far down it goes is unpredictable. It is one of those systems where we have the “butterfly effect” where small events have big consequences.
A simple solution to the problem is to remove the link between money supply and loans. Let us increase the money supply without increasing loans and the problem will be solved – provided we do something sensible with the increased money supply. One sensible thing is to use the extra money to build renewable energy plants which immediately become profitable if they are built with zero interest capital that only needs to be paid back when the plants make a profit. This will not be the end of capitalism as we know it but it will enable the banks to do what everyone things they now do. That is, take deposits and lend them out. That is what banks are good at. They are not an appropriate mechanism to increase the total supply of money as history has repeatedly shown.
Islamic banking does this and that would be a way of fixing the problem.
yea .. i don’t really understand what i have read 3 times .. can you please write and explain how this all works (in the email version) .. most of us would log on to crikey once in a blue moon .. we scan the email and that is all we have time to do .. guardian for the world .. crikey for oz (canned the 7’30 report ages ago – time for a big change there)
lemme explain
da banks force da companies to raise more money coz their fincial position is no good
then da companies get their friends da fund managers to to buy their shares using da retirees money which is invested with them its a win win for everybody but da retirees
da summarry is dat da retirees are left with a pile of worthless shares andf da banks win again….wake in fright my friends coz da whole fing is one giant ponzi scheme known as babylon