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Early profit for CBA but is it time to buy?

Discussion in 'Finance & Banking' started by Billv, 11th Oct, 2008.

  1. Billv

    Billv Getting there

    15th Jul, 2007
    Sydney, NSW
    The Commonwealth bank (CBA) has recently pulled off a cracker. If raised $2 billion this week to finance the acquisition of BankWest. But BankWest was acquired at below net asset value so the vendor proceeds were less than the assets received.

    In fact, Ralph Norris and Co. will now book a profit on the purchase because of the discount to net assets.

    They may require a modest amount to cover APRA tier-one capital obligations but only around $600 million maximum, less the discount amount of $200 million.

    The plunge in the Australian dollar has exacerbated the big banks' woes, driving up their cost of capital sharply. (The dollar, in fact, just recorded its worst week since the 1983 float.)

    While successive governments have boasted of the fact that they run surpluses and there is no national debt, deregulation and the explosion in credit over the past two decades have ensured a blow out in our private sector debt.

    The 25% drop in the currency will have hurt (wholesale funding programs average five-year duration versus the 15- to 30-year duration of mortgages - this borrow short/lend long caper is a trap when the currency drops).

    The Reserve Bank figures do not reveal the quantum of the foreign currency exposure, nor who picks up the tab, but it is a big number.

    Banking sources estimate the banks are taking a loss at 0.2% margin over a five year term. The banks are nervous, they have been testing the market for mortgage and loan defaults.

    the above came from this article
    More consolidation among Australian banks is feasible given the global credit meltdown; ASX:ANZ; ASX:NAB;ASX:WBC; ASX:CBA; ASX:SUN
  2. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    I want to know who they are lending the funds out to from the Telenet Saver which is paying 8.1%? Who are they lending it to as they are obviously paying a higher rate to BWA.


  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    I think that comes under the category of "loss leader".

    It's only a promotional rate for a limited time - their standard rate is similar to most other banks at 7.1%.