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 is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.