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Major banks and Macquarie at risk of downgrade

Christopher Joye

Coolabah Capital

In The AFR I argue that APRA is going to be left with no logical choice but to seek to minimise the substantial implicit government guarantees that artificially inflate the major banks and Macquarie's credit ratings by two notches, which in turn allows them to raise money more cheaply than their domestic rivals. APRA's Charles Littrell was extremely blunt last Friday in stating that the major banks' capital ratios will have to head higher (in an orderly, multi-year fashion), which was a message reiterated by his boss Wayne Byres. At the AFR's Summit, the Secretary General of the Basel Committee, Bill Coen, said there was no reason why banks' senior bonds should not be exposed to the risk of loss (rating agencies currently assume they are not). My base-case is that the majors and Macquarie lose their two notches of "extraordinary government support" on their credit ratings, but gain a one notch upgrade to their stand-alone credit profiles as their capital ratios increase by at least 100 basis points from current levels. Free (VIEW LINK)

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Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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