It’s been an interesting few weeks for Australia’s banks. First, the IMF warned our banks (some of the most well capitalized banks in the world) to beef up their capital reserves by a few billion dollars. Next, Fitch (a ratings agency) announced that they had placed our AA-rated top 4 banks on negative watch. That means their credit rating could fall.

To compound this issue, since the GFC, our banks have had the luxury of being able to use our Governments AAA rating when raising capital because our Government had guaranteed our banks. This means that during this period our banks have been financing their loan books at below normal interest rates (ie; at the rate a AAA rated government will pay and not the rate a AA rated business will pay).

The Government guarantee has now expired so banks are back paying AA rates (ie; higher) on future financing. But Fitch’s move to place them on watch means they could pay even more if they follow through and actually downgrade.

Sadly, this suggests to me that if the RBA cuts rates then banks will not be following suit – certainly not to the same extent because as it stands they are facing a margin squeeze and we shouldn’t forget that for every dollar the big 4 banks lend they make between 2 and 2.4 cents so margins are already tight.

This week we take a look at ResMed, a company that helps people sleep at night and Wesfarmers. Read on...

http://www.insightcpa.com/resources/investment-insights.html

Have a great weekend and for those in flood affected areas, stay safe.

Nick Rundle

Director of Financial Strategies