How Big Are Australian Banks?

by Stubborn Mule on 4 March 2009 · 6 comments

There is no doubt that the big four Australian banks have navigated the global financial crisis better than many banks around the world, particularly in the US and UK. However, there seems to be a pervasive tendency in Australia to overstate the success of the Australian banks.

A couple of weeks ago, Michael Duffy wrote in the Sydney Morning Herald that

There are only 15 banks in the world which now have a AAA credit rating. The four major Australian banks are among them.

It would be nice if it was true. However, no Australian bank has a AAA rating, they are all in the AA band.  There are a few Government-owned or guaranteed banks around the world with a AAA and the only privately-owned bank with a AAA rating these days is the Dutch Rabobank.

More recently, Kerry O’Brien was interviewing the astute Morgan Stanley analyst Gerard Minack when he made the comment

Given that the big four banks in Australia are now in the top 12 around the world, what risk still applies to Australian banks as this scenario that you’ve described unfolds?

Gerard blinked for a moment before moving on, so I suspect he knew that Kerry did not have his facts straight here. By my reckoning (with a bit of assistance from Bloomberg),now that Westpac has taken over St George, it just scrapes in at number 12. ANZ, however, is all the way down at number 33 and the other two are somewhere in between. If I have missed any of the major world banks in my calculations, that would only push Australian banks further down.

The chart below shows data I have uploaded to Swivel giving the market capitalization for 40 of the biggest banks in the world in billions of US dollars. Figures are in thousands of millions (i.e. billions) of US dollars. While management of the big four Australian banks should be pleased with how they are faring, there is no need to blow their trumpets to the point of ignoring the facts.

One final point: it is interesting to note that the three biggest banks in the world today are Chinese banks.

Market Capitalization by Bank

For those who read my earlier Amazing Shrinking Banks post, you may notice that I have added a few more banks, including the large Chinese banks.

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{ 5 comments… read them below or add one }

1 mark March 5, 2009 at 9:56 pm

You may have answered this before, but what’s going on when politicians of all stripes claim the AAA status? They were doing it again tonight on QandA. What is the statistical malfeasance here?

2 stubbornmule March 9, 2009 at 10:41 am

Here is the Q&A transcript where Costello said the following:

PETER COSTELLO: No, it was established in 1997. We now have four Australian banks which are amongst the only 12 banks in the world that are AA rated. We now have four Australian banks which are amongst the 20 largest by market cap. I think your own deputy prime minister recently told the Davos Forum, quite rightly, that Australia had a very successful system of financial regulation.

At least, unlike Duffy, Costello knows that the banks have a AA rating not AA. However, by my reckoning, only two of the four majors are in the top 20 by market capitalisation and there are at least 21 AA rated banks not 12:

Santander
Wells Fargo
Westpac
BNP Paribas
CBA
BBVA
nab
Hang Seng Bank
ANZ
Banesto
HSBC
Royal Bank Of Canada
Intesa Sanpaulo
Bank Of New York Mellon
Toronto-Dominion
Bank Of Nova Scotia
Credit Agricole
Societe Generale
Nordea
ING
Svenska Handelsbanken

3 stubbornmule March 10, 2009 at 12:45 pm

I just listened to Keating’s speech to the Lowy Institute and he is perpetuating the same errors. He claimed the majors were among only 12 AA rating banks and that all were among the top 9 banks in the world. When will they get it right?

4 Orange Tim March 10, 2009 at 1:14 pm

Yes, the world’s 3 biggest banks are all Chinese, but they are also all State owned. So there is no problem in them accessing China’s massive foreign exchange reserves which has been done in recent years.

And yes, there are sections of the media that need to check their facts, check them again and get them right. That’s what researchers are for. The problem is when so called facts like these get out initially, it’s very difficult to correct them. This can be said for any number of issues, not just financial.

5 stubbornmule March 10, 2009 at 1:33 pm

@Orange Tim: I agree that Chinese banks are a different case. Not only are they State-owned, but the transparency of their reporting could be called into question. Given some of the stats I’ve heard about vacant office space in major Chinese cities, there biggest problems may still be to come.

It is quite amazing how these sound-bite stats get a life of their own. At least the Duffie AAA furphy doesn’t seem to have been repeated in the press.

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