A very interesting macro perspective piece by Jessica Irvine in the Fairfax press today here.
Irivine reviews bank lending patterns, interest rate history and Australians' spending since the early 2000s and notes that consumer spending statistics contained a significant proportion of debt. She gives cogent reasons why these spending patterns will not be repeated in the current and near future.
The bottom line for retailers is that they must get used to permanently lower sales growth. This is bad news for shareholders and bad news for retail employees.
But for the economy as a whole, this deleveraging by households is a good thing. It's something households across the rest of the developed world are desperately trying to achieve but that only we have the ability to do effectively, thanks to the income boost from the mining boom. The Reserve Bank is happy to see some weakness in retail spending to make room for increased spending by businesses in the mining sector.
And if households can reduce their debts and build a buffer for future international financial turbulence, that is no bad thing
APRA calls for Big 4 Banks to provide "living wills'
The ABC yesterday broke this story view here. To deal with the notion of "too big to fail", the banks are being asked to give the regulator their plans in the event of another global financial crisis so as to minimise systemic risk; part of a global regulatory process reviewing capital requirements.
Ian Verrender writes yesterday in The Age "The Labour of Nicholas" that the future of Macquarie Bank's traditional investment banking operations is uncertain in the post-GST global market against much bigger players.
He details how its strategy of creating, selling to, and reaping management fees from, satellites is no longer a viable part of its investment banking business - an illustrative read.
Back then (2007), Nick (Moore) and his lieutenants had convinced the world that they had invented the financial equivalent of the perpetual motion machine. It was devilishly simple. Establish your own buyers, your very own set of clients in the form of listed satellites.
Then, buy assets at outrageous prices, sell them on to the satellites, for a handsome fee, and install your own management, again for a handsome annual fee. Each year, all you had to do was revalue the assets and borrow ever more cash to pay the dividends. Simple!
So impregnable seemed the model, that Macquarie's much bigger global rivals couldn't understand why they hadn't thought of it first and tried to get in on the act.
When debt suddenly dried up in 2007 and asset prices crashed, the machine ground to a halt, forcing Macquarie to cut loose all the satellites and return to a traditional business.
That was always going to be a hard slog.
While Macquarie never abandoned traditional investment banking, its operations had become addicted to the easy money to be made from the satellites. And they no longer exist.
It will be interesting to see what happens next week at the Macquarie AGM.
