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Advisors are located in or operate from the following locations:
| Perth, Canning Vale, Welshpool, Bibra Lake, Fremantle, Victoria Park, Midland, Maddington, Midvale, Joondalup, Osborne park, Malaga, Wangara, O’Connor |
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It's Not All Doom and Gloom – but it will do until the doom and gloom gets here!
As some commentators are saying, the reckless debt financed asset boom is over and prices will eventually return to a sensible level. However, markets always overreact and we can be sure that it will be a bumpy ride.
Reckless is hardly the word and the results of the American version of prudential banking –typical of which was the Ninja loan, where a borrower with no income, job or assets could borrow to buy a home – will affect every economy in every part of the world.
It’s time to set yourself and your business on track for possible turbulence ahead. It’s time to review costs, borrowings and commitments and get comfortable that you can weather the storm safely.
Arrange for your business advisor to give you a business health check and identify safe practical strategies that will work for you to ensure you minimise the potential harmful effects of the global crisis
On 18 September 2008 the global central banks took the unprecedented step of pumping $225 billion into the ailing financial markets.
This was on top of the US central bank’s bailout of mortgage giants Freddie Mac and Fannie May as well as AIG, the largest insurance company in America.Total global losses and write-downs in the banking sector since the start of the credit crisis last year are now put at more than $744 billion. The American bank, Lehman Brother's bankruptcy represents the biggest failure in financial history. This bank was over 125 years old and survived the 1929 Great Depression only to get swallowed up in the 2008 financial meltdown.
The Australian major banks are in a much stronger position than their US counterparts and the Australian Government and the local banks keep telling us that Australia has limited exposure to the credit woes sweeping America.
But the Australian Banks cannot find complete shelter from the storm and have already had billions of dollars wiped from their market values as well as writing off billions of dollars of profits due to bad investments. The NAB has written off $830 million at 30 June this year and ANZ provided over $2 billion in provisions for bad debts. It would be a brave commentator to say that there are no further surprises in store.
So what does this mean for us as small business people and customers of Australian banks and other financial institutions?
I'll bet my reputation as a young man that borrowing costs for businesses are going to head north.
The credit crunch will continue for quite some time and as credit dries up the laws of supply and demand mean that the cost of money will increase. Although the Reserve Bank may further reduce cash rates (the rate that banks lend to one another over night) there are many other factors that go to make up the rate we pay for borrowings such as overdrafts and lease finance.
The reduction in availability of credit is likely to significantly slow economic activity.
This is the secondary consequence of the banking crisis, as money becomes tight, projects get put on hold, commodity prices soften, lower share prices and earnings make it harder to re-capitalise.
Super funds have already been hit with lower valuations but will also be hit next year with lower earnings – ANZ are calling a 25% reduction in their current year’s profit. Those hoping to retire next year may have to stay in the workforce for a while longer to recover the value in their retirement funds
On the bright side, as unemployment increases it will be easier to get better employees at sensible prices.
Also on the bright side, don’t forget the poor bank execs who may not get such a large bonus next year. But they’re probably laughing all the way to the bank if they can still find one open:
• A few months ago Lehman Brothers granted its Chief Executive a $44 million stock bonus for 2007
• Merrill Lynch, another famous Wall Street name has been swallowed up by Goldman Sachs for a fraction of last year’s value after losing a whopping $24 billion, incredibly, 3 senior execs of Merrill’s stand to pocket almost $250 million for presiding over the failure.
• Australian bankers are suffering too, last year the five bosses at Macquarie collected $107 million between them – the lowest figure in three years. Macquarie’s share price has crashed form a high of $83.59 to $25.98 and one would think that their bonus pool may have taken a bit of a hammering.
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