US Tech Giants secretly funding Aussie housing "bubble" but Trump may pull them out

Much has been written about the multi-industry disruption arising from the entry of US technology giants into phones, music, automobiles, advertising, publishing and retail.  Now also add secretly funding the Aussie housing "bubble" to that list.

As revealed in a speech by Aussie central banker Guy Debelle, the cash rich US tech giants have been tapped by major Aussie banks (Westpac, CBA, ANZ, NAB) to replace the funding Aussie banks lost following the withdrawal of funding by US money market mutual funds.  A central bank research paper by Susan Black et al provides further detail on the quantum of this funding - as shown in graph 10, nearly $70 billion of Aussie bank funding has been pulled out by money market funds, but Aussie banks have nearly entirely replaced this funding with cash from giant US companies.

This $70 billion is just a small fraction of the approximately $500 billion of cash and marketable securities held by giants like Apple (US$250 billion) and Google (US$70 billion).   But it likely accounts for a substantial part of the short term wholesale funding of Aussie major banks.  For example, the biggest of the "big four" CBA's total short term wholesale funding is $111 billion.

Short & long term wholesale funding is used by major Aussie banks to fund as much as 40% of their balance sheet (of which residential mortages are by far the largest component).  Any disruption to bank funding sources has major consequences for Australian mortgage interest rates and Australian house prices.

Notorious secrecy surrounds exactly where tech giants like Apple invest their cash, which is managed by Apple subsidiary Braeburn Capital, headquartered in Nevada.  Previous disclosures of Apple's secret cash trails have been very quickly covered up, or have been met with punitive responses, according to Francis Yoon at Reuters South Korea:

The Maeil Business Newspaper reported on October 12 (2016) that Apple had placed an order to buy U.S. dollar bonds of KEB Hana, one of South Korea's largest banks in asset terms, but that the issuer had chosen not to accept the bid. 

The article infuriated Korean bankers, who said Apple was "extremely sensitive" about revealing how it managed its cash.  "This is not a small issue. Apple could stop buying Korean paper entirely," said a Korean banker, who did not participate in the KEB Hana deal. "This is super crazy.".... 

The Maeil later revised its article, eliminating Apple's identity. The story still cited JP Morgan Asset Management and Norway's central bank as participants in the deal. Concerns over Apple's reaction stem from a similar case in 2014, when a Hyundai Capital Services executive told reporters that Apple had participated in its recent $500 million issue of three-year floating-rate notes. 

That, bankers said, upset Apple so much it refused to take part in any future bond issues from the company.  "Apple never bought Hyundai Capital's bonds again. Hyundai even went to Reno several times, but Apple would never meet them," said a banker close to Hyundai

Whilst not directly mentioning Apple, Westpac bank has confirmed tech giants are an important funding source, as reported by the Sydney Morning Herald:

"We treat them as we treat Fidelity or Vanguard or any other investor," said Curt Zuber, treasurer of Westpac, which has issued $6.1 billion of US-dollar-denominated bonds in the financial year started October 1, and a total of $22 billion since October 2012. 

All four of Australia's biggest banks, heavily reliant on overseas debt markets, have sent representatives to Reno, Nevada, where Apple's money-management unit, Braeburn Capital Inc., is based, according to people with knowledge of the trips.

This raises questions about the short term funding risks of Aussie banks, should Trump and Ryan achieve their corporate tax cutting agendas.  US tech giants will then repatriate their overseas cash hoards back to the US, to buy back shares and simplify their balance sheets.  The action by the South Australian state government to tax wholesale bank liabilities that aren't even intrinsically linked to South Australian state borders would only increase incentives to pull out of funding Aussie banks.

Australian house prices are determined by a delicate interplay between the "fear" (of missing out), and the confidence in the future prospects of Australia's cities and economy.  A major disruption to the major bank "pillars" funding the Australian economy and funding of housing debt can upset the equilibrium between fear and confidence.  This delicate equilibrium is what drives the individual behaviour of home owners, consumers (spenders) and businesses/investors.  Small changes to a long standing equilibrium can easily snowball into large and disruptive changes (the so-called "Minsky" moment).  Australian households have high levels of debt and at some point in the future may reach such a Minsky moment.  Could the Trump tax cuts be the trigger that bursts the Aussie housing "bubble"?

Disclosure: the author of this article owns shares in Google, Apple, all four major Australian banks, as well as properties in metropolitan Sydney.