The Valor Blog.
Investment News and Views, Direct from Our Team.

Australian Bank Capital

Australian banks would have you believe that after their recent capital raising they are approaching the top quartile of banks when compared to global banks capital standards.

This is dogs faecal matter.

Doing fine line calculations on these capital requirements in our opinion is about as useful as measuring the level of radiation in the vicinity of Fukushima before the tsunami. There was no problem at that point in time. It is only after the tide goes out that you can truly know the extent of the problem.

Much of the rest of the world have significantly lower house prices after material corrections over the last 8 years. Australia is close to the top (maybe at the top?) of possibly the largest real estate bubble in history. The leverage of the banks globally is after they have taken their medicine from corrections. The tide has gone out for their capital measurements.

We are at king tide. Measuring capital at king tide levels is irrational and useless. A factor of reversion to the mean must be applied to work out what the true capital is compared to global banks. If this rational calculation was used, our banks would not be the loved cuddly animals that they currently are and many, many billions more equity would be required.