ANZ Chief Says Sovereign Funding Guarantee No longer Necessary

Post by NeilMc on June 4, 2009 · Under Australian Economy, Capital Markets, Company News, banking, interest rates · Comment 

The group chief executive of Australia’s fourth largest bank ANZ has thrown his hat into the ring by suggesting that the government should end sovereign guarantees for banks wanting to raise funding on international credit markets.

ANZ Group Chief Mike Smith, in an interview with the Financial Times said that ANZ was looking at issuing another non guaranteed bond on the international debts markets. Mr. Smith did not expand on when such an issue would be coming to market.

Last month, ANZ became the first domestic Australian bank to raise funding on international credit markets without the use of the sovereign guarantee, raising $1 billion. Its rivals did similar deals later in the month.

During his interview with the FT, Mr. Smith said that the lifting of the sovereign guarantee would send a positive message to the financial markets.

“The guarantee has served its purpose and there is now a case to argue that it is in fact disrupting the market,” he said.

“We have to get the [overseas] market to start taking paper which is not guaranteed by the government. Raising offshore debt would demonstrate that a degree of normality has returned to the market and the strength of the Australian banking system.”

He said the Australian government should also lobby for the removal of similar guarantees worldwide.

The four major banks, rated AA by Standard & Poor’s, are charged a fee to “rent” the AAA sovereign rating, and lower-rated banks are charged more.

The total guaranteed debt issued by the nation’s banks to the start of last month came to $104billion, providing the Government with a welcome annual revenue stream of about $1billion.

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