Australia - the Banksia collapse

In Australia, the collapse of "non-bank" Banksia Securities has affected thousands of investors fools who put $660 million in a guaranteed to blowup mortgage-lending scheme that chased high yields.

How did Banksia Securities offer above market returns? The answer is risky mortgages and commercial property loans now going bust.

Is this Australia’s Northern Rock moment?

The New Australian,

29 October, 2012

Banksia collapsed last night. 

The Sydney Morning Press Release Repeater Herald tries to explain what Banksia is here, and singularly fails to describe why it isn’t classed as a bank and subject to the world class prudential standards that APRA would hold it to as a consequence.

It takes deposits from folk (“Debenture firms often target retirees as investors“) and lends them out against property loans. But it’s not a bank though, remember? So the deposits aren’t covered by the government guarantee.

Well, it looks as if they’ve been lending the money out to shite investments that haven’t performed for them. Borrowing short, lending long.

Where have we seen this before?

Oh yeah.

But they’re not a bank though, right? Just take deposits, lend money out and have the word “bank” making up 71% of the letters in their name.

Not. A. Bank.

 

Is anyone surprised that this is happening now? The economy is shrinking, property is no longer going to the moon and, as the burger-eating Warren Buffet says, “when the tide goes out we find out who has been swimming without any clothes”.

I don’t think this is the last one of these we’ll see this financial year.