S&P slaps RBA in the face on housing

Christopher Joye

Coolabah Capital

In The AFR I again take no prisoners (as one bank CEO told me!) with my beloved central bank, arguing that S&P has slapped it in the face on housing with its downgrade of the credit outlook of the Australian financial system to "negative" on the back of its worries about house price growth and the household debt-to-income ratio. The RBA has repeatedly argued that its rate cuts will not amplify housing risks. I further reveal unreported nuance in S&P's analysis, including that: it has drawn a hard "line-in-the-sand" for house price growth over the next year, which cannot exceed 6%; it does not believe the major banks sit in the top 25% of 100 peer banks around the world on S&P's measure of core capital; the major banks now face three different credit rating threats from S&P and one opportunity; and the biggest credit rating risks lie with the major banks' senior bonds---assuming the RBA comes to its senses on housing and APRA continues to prudently constrain lending, there are upgrade possibilities for subordinated bonds and hybrids. Free (VIEW LINK)

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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