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E*Trade Australia Aggressively Seeking To Expand Market Share
Australian banking major ANZ’s online stock broking unit E*Trade posted a weak set of results as it suffered from increased levels of competition and investor caution stemming from the global financial crisis.
E*Trade Australia Securities did manage to make a dividend payment to its parent, but according to a filing with the Australian Securities and Investments Commission recorded a lower level of turnover for the year ending September 30th 2010, which resulted in reduced profits.
According to the filing, the slowdown in the market dented profits by as much as 23 per cent, coming in at $24.1 million whilst total revenue fell 6 per cent to $98.3 million. Brokerage income declined from $85.7 million to $78.2 million during the same period, while fees and commissions rose 8 per cent to $20.2 million.
Dividends totalling $17m were paid on August 20. No distribution was paid the previous financial year.
“The company continues to diversify its customer base and develop relationships with other licensed financial services providers,” E*Trade said in its accounts.
Following the global financial crisis, the level of competition between online stock brokers intensified as they all sought to get a larger share of the market, estimated to be 2 million Australians with internet trading accounts.
E*Trade was compelled to cut its brokerage rates in response to aggressive pricing from rival Commsec, the stock broker jointly owned by CBA and CMC.
This followed E*Trade chief executive Stuart Sayers declaring his company would offer more aggressive pricing on fees for international trade.
“On the 17th of November (E*Trade) altered its pricing on certain equity products and services,” the accounts say. “The directors believe that, together with continuing development of functionality, this pricing change delivers the optimal value proposition to our clients and will position the company for the future.” E*Trade chief executive Stuart Sayers said.
The outlook for the online share trading market seems optimistic, with trading volumes during the 2010 calendar trending higher. According to data from the ASX monthly trades have risen from 9.3 million in December 2009 to 12 million last month.
Commsec controls about half the market for online share trading, with E*Trade accounting for 20 per cent. As well has aggressively competing on price, E*Trade has sought to better integrate ANZ’s online banking platform with the E*Trade website as it seeks to increase traffic.
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Australian Stock Brokers Merge To Better Compete With Global Investment Banks
As Australia’s stock brokers seek to compete more aggressively with global investment banks, two of the largest brokers plan to merge their operations.
On Friday, Bell Financial Group, which is listed on the Australian stock exchange announced its intention to merge its two wholly owned subsidiary’s Southern Cross Equities and Bell Potter in a deal which would created a full service independent stock broker which provides services for both institutional and retail clients, as well as offer investment banking and research.
Southern Cross would fold into Bell Potter under its name.
Bell Potter has approximately 300 private client advisers as well as a financial planning operation, and the deal would combine that capability with the corporate and institutional expertise of Southern Cross.
Integration of the two companies is expected to occur from July 1st 2011, and signals a further consolidation of the equity broking industry.
The deal would catapult the merged broker above smaller rivals Euroz, Wilson HTM and Hartleys to sit alongside Patersons.
Charlie Aitken a Southern Cross director, and who is widely expected to run the institutional business of the merged entity says the deal positions the new company to better compete against second tier global investment banks “who we believe are people you can compete against”.
Mr. Aitken says he believes that the new company will eventually acquire to ten broker status, a list currently dominated by global investment banks such as Deutsche Bank and UBS.
“We think that there’s three or four very good global investment banks in Australia and then below that there’s a competitive space that we intend to fill.”
Colin Bell, chairman of BFG and founder of Bell Potter says that a combination of the two companies would boost revenue synergies in “a one plus one equals three” situation.
Southern Cross executives are expected to run the merged group’s institutional, research, ECM and corporate divisions, with Bell Potter people to head the private client and other businesses.
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Macquarie Downgrades CBA And ANZ On Regulatory Concerns
Australian investment banking major Macquarie has downgrade both ANZ and CBA on concerns of new capital ratio requirements resulting from the Basel III banking reform proposals.
The Basel III banking reforms, which will gradually be implemented over time, requires lenders to maintain a 6 per cent minimum tier one capital ratio, up from 4 per cent.
Craig Turton, banking analyst at Macquarie said that it was likely that CBA would have the lowest tier one capital ratio amongst the big four banks, which in a worst case scenario could fall to as low as 5.42 per cent.
Mr. Turton added that ANZ’s potential acquisition of a 57 per cent stake in Korea Exchange Bank and Basel III requirements, meant that there was strong evidence of weaker credit growth and increased pressure on margins.
“In the event ANZ were to acquire 57 per cent of KEB as well as get to a respectable post Basel III core tier 1 ratio, the bank would need to raise somewhere between $1.4 billion to $5.3bn,” he said.
Macquarie downgraded Commonwealth to ‘neutral’ and ANZ to ‘underperform’.
“We continue to prefer the retail banks (Commonwealth and Westpac) over the business banks (ANZ and NAB),” said Turton.
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Brokers Downgrade NAB
Australian banking major National Australia Bank (NAB) has been downgraded by a second broker following its failed acquisition attempt of Axa Asia Pacific Holdings (APH).
Earlier in the week, Macquarie downgraded NAB to “neutral”, whilst on Thursday UBS followed suit and also downgraded the lender to neutral from “buy”.
Jonathan Mott UBS banking analyst said that NAB’s stock price now traded in line with UBS’s valuation, following the competition regulators decision to deny permission for the lenders proposed acquisition of APH.
Mr. Mott added that NAB faced many challenges catching up to its big four rivals despite the relative strength of its business banking unit which produces 50 per cent of the lenders profit.
“This active M&A agenda has often been blamed for the underperformance of its domestic banking and wealth management operations, which perhaps have not seen the same level of management focus as their peers. While we were encouraged by statements by the new management team in its early 2009 strategic update that NAB would focus on its Australian operations and re-invest in higher return on equity businesses, its active M&A agenda has again brought this into question. We believe that recent share price movements around the proposed Axa APH acquisition illustrate both shareholder-dissatisfaction for that transaction and ongoing frustration with NAB’s M&A agenda.” Mr. Mott said
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Macquarie Likely To Cut Staff As Profits Plunge By 25 Per Cent
Australian investment banking major, Macquarie, which today revealed a 25 per cent drop in first half profit estimates, now faces the difficult task of cutting costs as the groups seeks to return to its former level of profitability.
Macquarie estimates first half profits of approximately$360 million, compared with $479 million in the same time period in the previous year.
Macquarie’s profits warning should not have surprised the market, given they had earlier warned that first half profits would not meet estimates, however the stock dropped as much 8 per cent.
CLSA and Citigroup had both already cut their ratings last week, but based on consensus full year profit estimates of $1.3 billion, , compared to the $1.1billion indicated by the bank today.
The profit downgrade by Macquarie was its third in the last three months, and the investment bank does not expect that this is the last of them.
In order for the investment banking group to return to previous levels of profitability, its chief executive Nicholas Moore will have to depend on a dramatic change in financial market sentiment, which looks unlikely at this stage.
Failure of trading conditions to return to normal will mean Mr. Moore will have to aggressively wring out costs, and staff cuts look increasingly likely.
In 2008 and the 14,600 Macquarie employees generated $137,000 each in profits. Flash forward to 2009 and each employee on average now generates just half that at around $72,000 in profits.
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Pimco Says Australia Is A Top Investment Destination
One of the largest global managers of fixed income securities, Pimco, says that Australia now offers the most investment opportunities in the developed world.
During one of its regular updates to the global bond markets, David Fisher who runs global product management for Pimco also said there was a “new normal environment”, which looked much different to that of previous decades.
Despite the volatility in Australia caused by former Prime Minister Kevin Rudd’s proposal to tax mining companies, a cooling China and debt concerns in Europe, Australia remains one of the top investment destinations of Pimco.
“Starting with a ladder, we would say those countries with solid fundamentals include in the developed world places like Canada and Australia, not only because they came into the crisis with better conditions … but also because they’re very well exposed to the growth dynamics in the emerging world and particularly through the channel of commodity prices,” Mr. Fisher.
Mr. Fisher also warned that there were risks posed by unrealistic expectations and over priced companies as both America and Australia both enter into critical reporting periods.
Pimco chief Bill Gross surprised global markets when he announced the asset manager had begun investing in equities.
“While we think bonds are priced for a depression, we think that equities are still priced for something more akin to the ‘old normal’ than the ‘new normal’, he said. We think that there’s still some scope for compression in PE ratios and we think that optimism over profit recovery is probably a little bit exaggerated in this environment of very, very weak growth, outside of a few countries such as Australia and Canada and the emerging world. So, on a relative basis, we would say that the returns in global bonds, while not spectacular, are certainly attractive.”
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Global Financial Market Instability Hits Australian Super Fund Returns
Volatile global financial markets that plunged in the aftermath of the European sovereign default crisis have consumed the highly anticipated bounce in super fund returns.
The drop in financial markets is likely to result in investment earnings falling below double digits for the financial year, ending at about 9.6 per cent.
The recent volatility has seen Australian super funds lose as much as 50 per cent of their valuations which provided the federal government with the impetus to ease rules on capital draw downs from pension funds.
As recently as two months ago, analysts were confidently predicting investment returns as high as 15 per cent. However in the last couple of months valuations have been hammered by renewed fears of the recovery in the global economy, which has produced a string of negative equity market returns in Australia.
The poor performance this year has resulted in lower rolling cumulative returns, with the median five year return now estimated to be 3.7 per cent, according to research firm SuperRatings.
Since the compulsory super was established in 1992, the median balanced fund has returned 6.8 per cent a year, illustrating the fact that a well diversified portfolio does indeed protect investors from catastrophic loss.
Balanced funds have both met and exceeded their long term objectives of outrunning the Consumer Price Index by an annual 3 per cent SuperRatings data shows.
Chant West, another research firm estimates that the median returns for investment funds who hold between 61 to 80 per cent of their portfolio in growth assets is exactly 10 per cent.
Superannuation industry figures look better when taken over the past seven years, but the record has been remarkably volatile.
After a shaky start to the decade, when many Australians fell behind compared to the returns of cash investments in the aftermath of the collapse of the tech bubble, Australians enjoyed a four year period of uninterrupted gains in their super, after which the onset of the first global financial crisis took hold.
Growth funds especially were hit in the financial years 2008 and 2009, posting negative returns of more than 6 per cent and 12 per cent respectively.
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Australian Regulators Warn Brokers To Be Suspicious Of Portfolio Manager Window Dressing
The Australian Stock Exchange, which with ASIC acts as a corporate regulator says it intends to monitor portfolio and mutual fund managers closely, as it seeks to stamp out the practice of window dressing.
Window dressing typically occurs at the end of the financial year and is a deliberate strategy managers engage in of price manipulation which dresses up the performance of the portfolio or fund before presenting the performance to clients or unit holders.
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Fund Managers Bullish On Equities According To HSBC
A new survey by global banking giant HSBC suggests that fund managers are more bullish on equities today, than they were three months ago, and are maintaining their holdings of Australian equities steady.
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Macquarie Guidance Disappoints Market
Nicholas Moore, chief executive of Australian investment banking major Macquarie Group says that proposed changes to regulatory framework had created an environment of uncertainty in the banking industry, whilst the investment bank announced a profit forecast that was below market expectations.
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