money-au.com.au

RBA Likely To Hold Interest Rates Steady

Neil — Mon, 06 Jul 2009 03:25:07 +0000

The Australian central bank, The Reserve Bank of Australia (RBA) will probably leave official interest rates unchanged for the third consecutive month, in response to a mixed bag of economic data. The RBA’s board will meet on Tuesday for its regular monthly interest rate setting meetings.

Analysts however believe that the RBA will indicate that it has room to ease interest rates further given that the outlook for the both the global and domestic Australian economies, remain uncertain.

The global recovery story suffered a setback last Thursday, after a US employment report suggested that the US unemployment rate was hitting a 26 year high of 9.5 per cent.

Australian equities sold off on the news, whilst other asset markets were forced to pare back the expectation that Australian interest rates would rise next year.

Craig James, chief economist with Commonwealth Securities said he believes that the US payroll data has renewed interest in the result of Tuesday’s RBA board meeting. Mr. James added that poor US economic data would dampen speculation that interest rates would rise and that the RBA would confirm its bias towards easing rates.

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Suncorp May Have Trouble Finding Acceptable Buyer For It’s Banking Business

Sharat — Mon, 06 Jul 2009 03:20:50 +0000

Australian Bancassurance group Suncorp-Metway, may have to expect a lower divestment price for its banking assets, and seek potential buyers from its regional rivals. Australia’s competition regulator may forbid a sale of those assets to the Big Four banking groups, fearing that too much market share would be held amongst the banking groups, hurting consumers and limit their choice.

Banking majors NAB and ANZ are thought to be the front runners to acquire the banking assets of Suncorp-Metway , which are valued at $7.7 billion, however both suitors may be prevented from consolidating the Australian banking landscape even further.

The chairman of the Australian Competition & Consumer Commission (ACCC), Graeme Samuel, has signalled that the regulators blessing may not be forthcoming, if a transaction involved one of the Big Four lenders acquiring a smaller regional lender.

Previously, Mr. Samuel has made public, comments about being uncomfortable with CBA’s acquisition of Bankwest, and approved the merger fearing that the alternative might have been the collapse of the Western Australia based bank.

Suncorp, which is based in Queensland is keen on jettisoning its banking business in favour of transforming itself into a pure insurance and wealth management play. However the reluctance of the regulator to approve a deal which included a Big Four buyer, has analysts speculating over the future of the bancasssurance group.

Scott Russell, banking analyst with Morgan Stanley told The Australian said he believes that given the uncertainty of the regulator view of such a deal, it would be extremely difficult for Suncorp to negotiate a sale to any of the Big Four.

“It’s not insurmountable (but) there are significant hurdles to executing an accretive break-up of Suncorp. These hurdles include ACCC concerns in retail and small to medium enterprise banking, questionable interest from the major banks, who are the only credible potential buyers in our view, the agreement on price and dis-synergies upon spin-off. Earnings in the bank are under enormous pressure and the new chief executive’s experience is in insurance rather than banking,” he said.

Suncorp’s loan book it valued at $55 billion, and the sale of its banking unit it is thought will be the first priority of newly appointed chief executive Patrick Snowball.

The bancassurance group’s share price has more than halved over the last year, hit by the sell off in financials and broader equities, but compounded by a strategy of diversifying into insurance and wealth management rather than banking.

In an interview with The Australian, the incoming Suncrop chief said

“I come from a background where we have multi-disciplined businesses within an organisation and I’m very comfortable with that. If you look at someone like Aviva, we had a broad spectrum of companies and we were able to demonstrate that the sum of the whole was greater than the sum of the parts, and of course that’s the important aspect of any organisation that has a mixture of businesses in it.”

Many analysts have compared Suncorp’s business model with that of financial supermarkets such as UBS and Citi that bore much of the brunt of investor skittishness when credit markets froze. Both UBS and Citi have announced that they intend in future to concentrate on their core businesses.

The expected division of assets will be welcomed by analysts and investors many of whom believe diversification of Suncorp’s business has made the group hard to value.

Suncorp’s insurance business which includes its acquisition of Promina has a gross written premium of $3.3 billion, whilst its wealth management assets have a value of $23.4 billion. The wealth management arm has been divided from the main bank and re-branded Suncorp Life, in a move that many analysts believe will make it easier to sell the bank.

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NAB Announces Debt Repurchase Plan

Sharat — Fri, 03 Jul 2009 01:59:00 +0000

Australian banking major, National Australia Bank (NAB) is taking advantage of the drop in prices of its own bonds as a result of the global credit crisis, and using the opportunity to repurchase US$250 million of its own long term debt at two thirds of its face value.

The measure is designed to shore up finances and improve its tier 1 capital position. The lender plans on buying back US$10,000 blocks of its own debt at a cost of US$6,250 for each block.

NAB’s decision follows moves by other Australian financial institutions such as domestic investment bank Macquarie to repurchase previously higher priced debt at reduced prices.

Some markets for debt products have become extremely illiquid, with buyers remaining scarce leaving investors unable to exit their positions, causing the value of the debt to fall drastically.

The paper NAB plans on repurchasing is perpetual, with no maturity date, and was issued just before the market crash of 1987.

The debt which is listed on the London stock exchange has seen little trading over the last 18 months as the marker for such securities has all but ceased to exist.

NAB has been paying interest on the debt for almost a quarter century, and has used the opportunity of the nearly frozen market for such instruments to repurchase the debt from remaining investors at a significant discount.

NAB’s offer is thought to be at the same price that the debt last traded at.

Investment bank UBS is handling the buyback offer, which closes on July 22nd, and an NAB spokesperson said that the lender had no defined target for how much debt it would end up repurchasing.

NAB’s move exemplifies one of the few benefits of the freezing over of credit markets for financial institutions or indeed any issuers of paper which has become illiquid. Issuers have been able to profit from the previous issuance of longer term debt, though by the same token, the cost of issuing newer shorter maturity debt has also risen.

There are however indications that primary market conditions continue to ease, with the cost of issuing new debt having fallen recently. Regional lender Bank of Queensland issued $500 million in new debt paying 65 basis points above benchmark swap rates. BoQ’s last issue in January was cost the issuer half a percent more to tap the markets than yesterdays bond sale.

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International Kangaroo Bond Issuers Find Australian Debt Market Increasingly Expensive

Sharat — Thu, 02 Jul 2009 02:25:36 +0000

International issuers from Asia, Europe and the US are finding the costs of issuing Australian dollar denominated debt known as “kangaroo bonds” are rising as a result of having to compete against Triple A rated sovereign guaranteed debt being issued by domestic Australian banks.

Two supranational issuers, International Finance Corporation (IFC) and The European Investment Bank (EIB) who between them issued US$17 billion in kangaroo bonds in the four years to Augusts 2008, now pay 120 basis points in additional interest, when tapping the Australian bond market.

The additional interest means for every US$1 billion that is borrowed, those issuers are required to pay US$12 million a year in extra interest.

Supranational organizations are those institutions formed by two or more governments and usually have a mandate to finance or aid economic development.

Prior to the global credit crisis, supranationals were able to issue Kangaroo bonds below mid swap rates. Such interest rates no longer seem attractive to investors who have option of investing in sovereign guaranteed debt with interest rates of 120 basis points above benchmark swap rates.

According to Bloomberg, Australian banks, since the start of the year, have issued $US52.8 billion in sovereign guaranteed debt. Taking advantage of the Federal Government guarantee which was introduced on November 28th to ensure Australian banks were still able to obtain funding in the aftermath of credit markets freezing over in the wake of the Lehman Brothers collapse.

The amount of Kangaroo bonds issued in the first half of 2009 amounts to $5.5 billion, falling almost fifty per cent or from $10.1 billion during the same period in the previous year. International issuers have raised $126 billion in Kangaroo bonds since 2000.

Supranational organizations tend to have the highest credit ratings, allowing them to obtain financing at lower interest rates than normal corporate issuers. In 2001 The Asian Development Bank (ADB) issued US$1.3 billion in Kangaroo bonds, paying 6.25 per cent on debt with a maturity of 10 years. That was 39 basis points lower than the benchmarks swap rate at the time according to CBA who helped manage the deal.

Five years ago the EIB paid 30 basis points less than the swap rate for a US$2.5 billion deal. Two years later the same issuer had to pay 29 basis points more than similar Australian government paper for a $1 billion deal. The spread rose to 93.25 basis points when the issuer sold US$1 billion in five year paper on May 12th 2009.

Westpac’s debt chief Simon Ling said that Supreanationals “were being crowded out by triple A issuance from the banks” in the first half of the year, but since then the spreads on bank guaranteed paper have come in, making these other deals look attractive”.

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Westpac Expects Further Pressure On Loan Portfolio

Neil — Thu, 02 Jul 2009 02:20:40 +0000

Australian banking major Westpac Banking Corporation has said that it expects to see further pressure on its consumer loan book as rising unemployment takes its toll and causes credit impairments to rise.

In a letter to shareholders Westpac Chairman Ted Evans said he believes that loan growth will slow as a result of lower demand resulting from both consumer borrowers and business debtors deleveraging their balance sheets.

“It is expected that more customers will come under pressure as the effects of the slowing activity become more widespread. We are already seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises.” Mr. Evans said.

Westpac also binned the benefits package it offers to its retail investors as a result of high administration costs and low uptake of the offer. The package ceased to be available from June 30th the bank said.

The scheme offered Westpac retail investors discounted products and services has been in effect since 1998.

Westpac suspended the offer in November last year after it noticing the high cost of the scheme and the number of retail investors taking up the offer was low. The lender then sought the feedback of its shareholders.

“We received much feedback from shareholders, and while there was some support for the package, many of the benefits were seen as of little relevance to their needs and of little value,” Westpac said. The package has been costly and difficult to administer, a factor that has been impacted by the expansion of the Westpac group’s suite of brands and products.” The bank said.

Westpac said it will continue to make special offers to shareholders.

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Suncorp Finally Names New Chief Executive

Neil — Wed, 01 Jul 2009 02:37:17 +0000

Regional lender and bancassurance group Suncorp-Metway Lts has announced the appointment of Patrick Snowball as its new chief executive. Mr. Snowball a former executive with UK insurance giant Aviva plc, will begin his tenure with Suncorp, Australia’s fifth largest lender on the 1st of September and also joins the group’s board.

“Mr Snowball is a highly experienced financial services executive, with a strong background in insurance that includes an extensive career at Aviva plc, the world’s fifth largest insurance group and the largest insurance services provider in the United Kingdom.” The company said in a statement.

“I am delighted to announce the appointment of an outstanding leader with extensive financial services experience and who has overseen businesses with operations in the United Kingdom, Ireland, Canada, India and Asia,” Suncorp chairman John Story said.

“Patrick Snowball is uniquely qualified to lead Suncorp through a period of fundamental change and renewed growth as the group reshapes itself to respond to the challenges of the external market.”

Mr. Snowball who will move to Brisbane when he assumes the role of CEO, said he was looking forward to guiding the bancassurance group through a critical stage in its development during one of the most difficult operating environments in recent memory.

“I have accepted the CEO role because I am very confident about the underlying strength of the group’s businesses and the potential that exists within its strong stable of financial services brands,”

“Mr Story and the board have been very open about the challenges Suncorp faces and the expectations of its various stakeholders. “he said.

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ANZ In Advanced Negotiations To Acquire Five Asian Units From RBS

Sharat — Wed, 01 Jul 2009 02:32:12 +0000

Australian banking major Australia & New Zealand Banking Group (ANZ) is thought to be keen on acquiring the operations of quasi nationalized UK bank Royal Bank of Scotland’s (RBS) operations in at least five countries in the Asia region as the lender splits up its regional assets in order to make the sale more attractive for potential bidders, according to a report by Bloomberg.

The report which cited three unnamed sources familiar with the negotiations, says that the Melbourne based lender is at an advanced stage of negotiations for the acquisition of retail and commercial banking operations of RBS in Hong Kong, Singapore, Taiwan, Vietnam and Indonesia.

The report also suggests that the British bank Standard Chartered, is interested in acquiring RBS units in China, India and Malaysia, with the sale of asset sales generating as much as US$1.5 billion for RBS.

ANZ chief Mike Smith who has made public his strategy of turning ANZ into a “Super Regional” lender that derives 20 per cent of its revenue internationally, has ambitious Asian expansion plans, as rising credit impairment charges in Australia puts pressure on profits, prompting the Australian based banking group to cut its dividend payment for the first time since 1991.

RBS which last year posted the biggest loss in UK corporate history is looking to rationalize its operations, in as many as 36 different countries that account for two thirds of its global business.

RBS chief executive Stephen Hester has had to divide up the Asian business into individual country units after potential bidders balked at the prospect of buying the entire portfolio, and showed more interest in acquiring individual operations.

ANZ confirmed its interest in RBS’s Asian operations on May 27th, and a spokesman for the lender Paul Edwards said that negotiations are on going.
“For ANZ, the outcome remains unknown,” he said.

Spokespersons for both RBS and Standard Chartered declined to comment.

In May ANZ raised A$2.5 billion in capital through a share sale, largely to finance its bid to acquire RBS assets.

In January ANZ said it paid $114 million to increase its holding in Indonesian bank PT Bank Panin. ANZ said it also intends to increase its presence in Vietnam by opening as many as six new offices there.

Of the Big Four Australian banking groups, ANZ has the most invested in Asia with a 20 percent stake in Shanghai Rural Commercial Bank and sizeable holdings in Saigon Securities and Malaysia’s ANMB Holdings Bhd.

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CBA’s Internet Banking Facility Breaks Down

Neil — Tue, 30 Jun 2009 03:03:33 +0000

Commonwealth Bank of Australia’s internet banking facility NetBank broke down on Monday and was not available to the lenders customers for a few hours yesterday as a result of “technical issues” the bank said.

NetBank which has 2.6 million customers, all of whom found that they were unable to access the service mid morning. A CBA spokesperson Steve Batten, said that the service had been restored by the afternoon.

Mr. Batten said that “network problems” had produced the failure and quashed rumours and reports that hackers had penetrated the site and caused the outage.

“It was not a denial of service attack. It wasn’t a hacking attack” Mr. Batten said.

CBA’s internet banking facility has had more than its fair share of issues when compared to the offerings of its other Big Four rivals.

In November and December last year NetBank customers found thousands of dollars missing from 200,000 accounts after an error, which had caused transactions to be duplicated.

In October, Centrelink payments to thousands of customers were delayed due to another computer glitch.

Mr. Batten denied that there was a systemic problem with CBA’s internet banking facility and said that performance issues were as a result of the sheer size of the site.

“NetBank is the largest and most used online banking website in the southern hemisphere.” He said.

Commonwealth Bank is in the midst of a $580 million core banking technology upgrade.

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NAB Faces $347 Million Tax Liability

Sharat — Tue, 30 Jun 2009 02:58:34 +0000

Australian banking major National Australia Bank (NAB) may be required to take a $347 million tax hit resulting from a long term dispute with the Australian Tax Office, according to a report in The Melbourne Herald Sun newspaper.

Market analysts believe that recent decisions by the Full Federal Court on the deductibility of a St George Bank exchangeable capital (ExCap) program may have implications for the 2009 and future profit results of NAB.

NAB may lose out on a $309 million provisional payment already made back in 2004 to the ATO and may have to pay a further $347 million in order to settle the tax claim on its ExCap program.

12 years ago, in 1997 NAB raised capital through the issuance of securities called Exchangeable Capital Units (ExCaps). The securities had an annual coupon of 8 per cent. The tax liability stems from the fact that the interest was initially thought to be tax deductible. However in 2004 the ATO made a decision to disallow all interest deductions in the six years preceding 2003.

That decision meant that NAB had a tax liability of $600 million, and unsurprisingly NAB has contested the decision.

NAB made a provisional payment of $309 million towards its full liability, a payment it was required to make in order to be able to continue with contesting the tax assessment. However is has classed the pre payment as an asset on its balance sheet suggesting that it expects to be vindicated and the amount will be refunded.

Last Friday NAB signalled the market and its investors that it may write down the value of the provisional payment after announcing that it was undertaking a review of the carry value of the $309 million provisional payment, in the wake of the recent decision by the Federal Court.

“NAB is continuing to assess the implications of the St George decision, including reviewing the carrying value of the $309 million asset receivable. Any adjustment would be outside of cash earnings.” the bank told the ASX in a filing.

The uncertainty NAB faces over its tax liability came against a backdrop of the lender confirming the closure of more of its branches. Unnamed sources told the Melbourne Herald Sun that six more branches would be closed in New South Wales, with an NAB spokesperson Lusia Ford later confirming the branch closures.

“Over the last few months we have advised customers in some areas of NSW that we will be closing branches due to a variety of reasons. These include security issues, a decline in customer traffic or multiple branches in close proximity to each other. Our customers have been advised in writing and alternative banking options have been provided.” Ms. Ford said.

The latest branch closures follow NAB’s decision back in April to close eight branches in Victoria as part of the first phase of NAB chief Cameron Clyne’s plan to rationalize the number of branches NAB operates.

After the first round of closures, NAB confirmed that it intended to close as many as 35 branches from its national branch network.

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NAB’s Aviva Wealth Management Acquisition To Bring Scale

Neil — Mon, 29 Jun 2009 03:26:07 +0000

Australian banking major National Australia Bank (NAB) $825 million purchase of the Australian wealth management operations of Aviva PLC will provide scale to NAB’s life insurance business, says chief executive Cameron Clyne.

The acquisition of the insurance majors Australian insurance and wealth management unit marks the first major deal Mr. Clyne has embarked on since assuming the top job at NAB.

“With the Aviva transaction, we felt it was an appropriate sale acquisition for us. It brings scale to our existing business,” Mr Clyne told ABC Television’s Inside Business program.

Mr. Clyne said that after the completion of a strategic review, wealth management had been identified as a key area of growth, though banking would continue to remain its core business.

“The Aviva transaction was obviously an element of opportunism as it came up, and they don’t come up all the time and so we took that opportunity,” he said.

Mr. Clyne admitted that certain deals undertaken over the last twelve months had produced a sized differential amongst Australia’s big four banks.
“We still remain a large player in the Australian market but yes there has been a change in size,” he said.

“Size is not our driver. What we are focused on obviously is improving our total shareholder return. That’s been something of a disappointment for us over a number of years. Improving our return of equity, and importantly, improving the service we provide to our customers, and particularly helping them through this cycle. So, whether we’re one, two, three or four, I think as I’ve said on previous occasions, that’s not the primary concern.”

The NAB chief said that the UK business comprising of the Clydesdale and Yorkshire banks would have opportunity to grow in the future.

“The business there has attractive organic growth opportunities. There may be chances to strengthen its deposit franchises as the opportunities emerge perhaps from distressed building societies and other things,” Mr. Clyne said.

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