Thursday, June 28, 2012

Toxic Assets kept on the books by Bank of QLD

While the scope of the problem in Australia may not be at the same level as we've seen in the US/UK/Europe where insolvent banks refuse to mark down the value of toxic assets and rather keep them at full value on their books, it appears we have some banks in a similar situation here.

This from Dow Jones Newswire today:
Bank of Queensland has abandoned plans to sell its $230 million portfolio of non-performing commercial property loans after offers failed to meet its price expectations.
The regional lender said in a stock exchange filing that the final bids submitted by two consortiums this month lacked "sufficient value" for the bank to proceed with the sale, originally seen as a quick way to offload some of its impaired assets.
"Bank of Queensland has alternative strategies in place that will see the individual assets worked through in a timely manner without significant erosion of value to Bank of Queensland and its shareholders," chief executive Stuart Grimshaw said. The lender will look at new ways of "maximising value and minimising the time required to recover non-performing capital". The Australian
So BoQ is keeping these non-performing (read: toxic) assets on their books and are not prepared to take the loss by selling them at market value, rather they are going to look for new ways to "minimise the time required to recover non-performing capital". It looks to me like we might have another "Bank West fiasco" in the making (property margin calls/forcing sale of the properties). 

Let's hope Bank of Queensland handles things more carefully than Bank West did in order to avoid landing themselves in hot water with angry customers:
About 400 angry ex-Bankwest customers say the bank has been colluding with property valuers to force commercial borrowers to default on their loans.
The Perth-based bank is facing two potential class actions over the way it re-valued assets and called in the loans of hundreds of its small to medium-sized business clients after a takeover by the Commonwealth Bank of Australia (CBA) in 2008. News
It's also worth noting that the sub prime issue in Australia is also considerably larger than previously though with details surfacing in this recent article:
Subprime-style lending practices were rampant during the last property boom despite claims by lenders that local practices were superior to global standards.
The Australian has exclusively obtained hundreds of internal emails between lenders and mortgage brokers that lift the lid on the extent of aggressive -- and in many cases predatory -- lending practices in the five years leading up to the global financial crisis.
The emails, many of which are from some of the biggest lenders to chains of hundreds of mortgage brokers, show some spruiked imprudent lending practices to mortgage brokers, highlighting loopholes in their own lending requirements. The practices, which have embroiled the likes of Macquarie Bank, Westpac and GE Money, as well as mortgage brokers in every state, underpin what is emerging as the Australian version of US subprime problems. The Australian
If you've got a commercial loan with Bank of Queensland it might be time to pull out the contract and read over the fine print. As shown previously on this blog (Post on Property Margin Calls) there is the potential that clauses in the contract will allow the lender to call in your loan simply based on the value of the property falling below their LVR requirements...

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  1. well, that's pretty much what I thought the Japanese banks did back in the 90's

    1. Called in Australian loans? I had heard this as well, but never much more than Chinese whispers, couldn't find any detail online. I suppose it would take digging through newspaper archives to find the information...

  2. informative. keep up the good work

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