UBS May Sell World’s Largest Hedge Fund Investor
Swiss newspaper reports on Tuesday suggests that troubled banking giant UBS many end up having to sell a business unit which acts as the biggest single hedge fund investor in the world.
The unit known as Alternative and Quantitative Investments has 30.1 billion Euros of assets under management, dwarfing other fund of fund or hedge fund investors globally.
The report, by Swiss newspaper the Zuercher Zeitung did not obtain comment from the Swiss banking giant on its report and did not cite its sources.
The bank’s chief executive Oswald Gruebel warned last Wednesday that the bank would “become smaller,” and that the group would look at which businesses it would drop.
At the start of the month UBS announced that there would be a global cull in its work force in the region of 8,700 people.
On Monday, it announced the sale of its Brazilian unit UBS Pactual for $US2.5 billion ($A3.58 billion) to Brazilian investment company Banking and Trading Group.
Switzerland’s biggest bank has been struggling to recover after losing billions in the financial crisis.The bank is scheduled to post its first quarter earnings on May 5
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Australian Credit Card And Personal Loan Applications Decline.
The number of borrowers applying for unsecured lending products such as personal loans and credit cards has declined by 13 per cent in the first quarter 2009, a new report by a market analytics firm suggests.
The report issued by credit data firm Veda Advantage also suggests that more consumers are inquiring about the possibility of obtaining a first mortgage with the number of enquiries increasing by 14 per cent.
“There is a trend for people looking into the viable property market given the abnormally low interest rates and the Government’s incentives for first-home owners,” Veda Advantage chief executive Rory Matthews said.
Mr. Matthews also said that the actual number of mortgage applications in the 18-25 age groups has risen by as much as 63 per cent since October 2008. This was based on having analysed this type of loan product for over five years
First time home buyers have a lot of incentives to look at making purchase, including record low variable rates of interest whilst the government grant they receive has doubled to $14,000. It is therefore not surprising to see that the level of interest first time buyers are showing in the property market has increased.
The firm believes there has been an improvement in the quality of credit applicants, which “is a positive sign for the economy’s growth and reduction of bad debt”.
Veda said the number of people applying for new credit cards, personal loans and mortgages with negative information recorded on their risk profile had declined this year.
“Many people who have applied for credit in 2009 have had no prior adverse information on their credit files, which underpins the increase in first-home owner applications being new to the credit market,” it said.
The company also added that default rates for credit card and personal loans had risen gradually in the first quarter of the year, with March recording the highest year-on-year monthly increase.
“This is because defaults generally take three to six months to be recorded on your credit file. This may be indicative of a Christmas spending-spree hangover as Australians struggle to repay debts incurred over the Christmas last year.” Mr. Mathews said.
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NAB To Close Some Branches
Australian banking major, National Australia Bank NAB, is embarking on a cost cutting program which will result in the closure of at least eight branches in Victoria, according to a report in the Herald Sun.
The branches that are to be closed include Balwyn North, Mitcham and Mill Park, Mount Martha, Balnarring and Blackburn.
An NAB spokesperson confirmed the bank was closing the eight branches under an overhaul of the distribution network. The spokesperson also suggested that the closures did not imply that the lender intended to make deep cuts to its branch banking network in order to contain its costs, rather that the bank felt branches in other locations would result in greater efficiencies than can be produced by the branches NAB intends to close.
“NAB continues to invest in its branch network throughout Australia and regularly reviews every local market to ensure we have the right mix of banking options for our customers. This ongoing analysis and investment means we have better branches in better places, providing improved and increasingly convenient banking for our customers. This year, NAB is investing more than $35m in its branch network. While we are closing some branches we are also opening others across the country as well as upgrading existing branches to ensure NAB customers have a better banking experience. When NAB decides to close a branch the decision is not taken lightly, many factors are taken into consideration. One of the main reasons for a branch to close is because it has seen a significant decrease in the number of people using it, particularly as more and more customers move to internet and telephone banking.” The spokesperson said
According to data published by the Australian Prudential Regulation Authority, NAB had 774 personal and business banking outlets across Australia at the end of June last year, including 218 in Victoria.
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Australian Banks Begin Raising Fixed Mortgage Rates.
Three of the Australian big four banks have increased their fixed mortgage interest rates, following National Australia Bank’s (NAB) lead last week in raising their fixed rates citing higher funding costs as the reason.
Yesterday first Commonwealth followed NAB’s lead and raised its fixed mortgage interest rate followed by Westpac announcing its decision to do the same. ANZ interest rates remain unchanged as of now.
CBA’s four-year fixed rate home loans rose 20 basis points, or 0.2 percentage points, to 6.59%, effective Tuesday, while its five-year fixed rate home loan was increased by 45 basis points to 6.84%.
Westpac raised its one-year fixed rate mortgages also by 20 basis points to 5.39% and its two-year fixed rate mortgage was raised by 30 basis points to 5.49%. Westpac also increased its three-year fixed mortgage 40 basis points to 5.79%, while the five-year mortgage has nudged up 10 basis points to 6.39%,
NAB. the first bank to raise fixed interest rates increased its two and three year fixed rate mortgages by 20 basis points on April 14th. NAB’s standard fixed rates for two-year home loans increased to 5.29 per cent, while the rate for three-year home loans lifted to 5.49 per cent.
All three banks cited higher funding costs, despite the Reserve Bank of Australia having cut official lending rates to their lowest in 45 years. Fixed rate mortgage interest rates are not so dependent on short term official interest rates.
Banks and lenders tend to fund fixed rate mortgages with term funding on money markets or through fixed deposits of similar duration, locking in their spread. Therefore fixed interest rates do not move in the same fashion that variable mortgage rates do and can, depending on the funding scenario actually move in the opposite direction depending on the cost of term and money market funding.
Commonwealth Bank said the rates on fixed interest loans ”reflect the recent increases in the wholesale market swap rates that the bank funds fixed term home loans from.”
ANZ is yet to alter its fixed-rates rates since January, leaving them at 5.99% for a one-year and two-year fixed rate mortgage and 6.19% for a three-year rate, a spokeswoman for the bank said.
The Australian central bank has reduced official interest rates by 425 basis points since September, as it battles to spur growth in the economy. The interest rate currently stands at a 49-year low of 3%, following this month’s latest 25 basis point cut.
Banks came in for criticism when they passed on only part of the latest, with CBA and Westpac trimming variable lending rates by 10 basis points.
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CBA Cuts Executive Pay
Australian banking major, Commonwealth Bank of Australia (CBA) has announced that the lenders chief and entire board of directors will receive pay cuts in an effort to save jobs. Chief executive Ralph Norris and the company directors have agreed to an across the board 10 per cent pay cut to their base salary.
CBA also said that its executive committee which is comprised of executives who run various business units will see their base salaries cut by 5 per cent.
CBA Chief Norris said that although the lender counted itself amongst the strongest banks globally, he added that slowing business volume and rising bad debt would affect the banks profitability.
“Typically, in such situations, organisations embark upon major redundancy programs which, while addressing pressures in the short term, often leave organisations significantly under-resourced to respond to the inevitable recovery. To this end, in order to preserve jobs as best we can, and tailor our costs to a weaker economy, the Board, which froze its Directors’ fees for the current financial year, has now decided to cut its Directors’ fees by 10 per cent for the coming year.” Mr. Norris said according to the Business Spectator who said it obtained the comments from an email it had obtained.
CBA employees who take home $100,000 in base salary, will not receive an increase for at least 12 months, whilst those earning less will see pay increases of 1.5 per cent.
Mr. Norris earned a base salary of $3.1 million last year, although his total remuneration totalled $8.7 million, according to the bank’s annual report.
Those at the executive general manager, general manager or executive manager level will also miss out on any increase in base pay or short-term incentives for 12 months.
“The current economic environment is a particularly difficult one and I hope you will agree that this course of action is in the overall best interest of our team, our customers and our shareholders as we endeavour to save jobs, service our customers and provide a reasonable return to our shareholders, Nevertheless, I firmly believe that the commitment we have made over recent years in focusing on our customers and strengthening our business will see the Group come out of this crisis in a very strong position.” Mr. Norris said.
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Australian Operations Of UBS Spared From Global Job Cull
Swiss banking giant UBS which has taken a massive hit as a result of the global banking crisis announced on Thursday that it would be cutting a further 8,700 jobs, on top of the 11,000 it has already culled as part of its rationalization efforts. The group wants to reduce its total staff to 67,500 by 2010.
The cuts are expected to occur mainly in the US and in Switzerland, and will be concentrated in back office functions of its wealth management units. The bank announced this latest cull after having cut 240 wealth management jobs within its Asia-Pacific Private banking unit.
UBS has been one of the investment banks hardest hit by the financial crisis, and in October last year was forced to accept a $US5.3 billion capital injection, and strike a deal with the Swiss Government to transfer the ownership of $US60 billion worth of toxic assets.
UBS recorded one of its worst quarterly performances, with a $SU1.75 billion ($2.42 billion) first-quarter loss which exceeded most analyst expectations for the first three months of the year.
The Australian unit of UBS is arguably one of the leading investment banks servicing the Australia and sources say the Australian operation seem to be safe from the cull and has not been asked to scale back on its business, in the same way that other units have been asked to do globally.
“This will have no consequence on the Australian business,” one source told the Australian. UBS has so far cut about 50 jobs as banks seek to wring out costs in Australia.
The decision by the bank’s head office in Switzerland to cancel bonuses for all staff after the national bailout angered many Australian bankers at UBS, since the domestic arm maintained its spot as the leading investment bank in Australia.
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News Reports That ANZ Not Interested In RBS Asian Assets Far Fetched
The Australian Newspaper is reporting the unlikely story that the Australia and New Zealand banking Corporation (ANZ) which recently made the short list as a bidder for troubled UK banking giant RBS’s Asian operation is no longer keen on being included in the asset sales.
At the start of the week it was announced that Standard Chartered, HSBC and ANZ had been named as part of the short list of potential bidders for RBS retail and commercial banking operations in The Philippines, Taiwan, Hong Kong, China, India, Pakistan, United Arab Emirates and Kazakhstan.
Money-AU reported yesterday that RBS was prepared to split the sale amongst various potential buyers, rather than sell the entire portfolio to a single buyer, largely for practical purposes.
The Pakistani operations are most likely to attract the highest bids from domestic financial institutions rather than international bidders.
Whilst the Indian franchise, a legacy of RBS’s ABN Amro acquisition, perhaps the jewel in the crown of its whole Asian portfolio, and the asset of most interest to ANZ, could not be sold to either Standard Chartered or HSBC in its current form.
The Reserve Bank of India, India’s banking regulator would simply not tolerate the sale of an existing banking franchise in India, with a branch banking network, to be acquired by another international bank with its own branch banking network in the country. Such a sale would run counter to its protectionist strategy of not allowing international banks to develop enough scale to provide meaningful competition to domestic incumbents in India.
This would mean that a sale of the Indian franchise would have to be broken into wholesale banking asset and retail banking asset sale which would be hugely unattractive to any buyer.
RBS for its part has said it is talking to regulators from each market it operates and is planning asset sales separately.
“RBS Group has announced its intention to consider options, including the potential sale of its retail and commercial businesses in Asia-Pacific,” an RBS spokesman said. “We are currently in active discussions with potential buyers as well as regulators in each affected country.”
It is most likely that the Australian is reporting spin from its sources within ANZ. The article suggests that RBS is keen on selling the entire portfolio to a single bidder, and that “ANZ is not prepared to buy a parcel of assets and wants to avoid duplication of brands in the markets where it is already present”
ANZ has a presence in Indonesia and Vietnam as part of joint ventures or stakes in financial institutions operating in those countries. Though it would make some sense not to purchase a wholly owned subsidiary in those countries, which would compete with its JV’s and would run counter to its current strategy, the argument is not completely compelling.
Strategies should be fluid, sales of existing stakes to JV partners could be conducted, and the ANZ brand could be built on its own using the RBS pan Asian banking asset portfolio.
In China ANZ has both its own subsidiary and a joint venture, it could easily replicate the same strategy in other countries where joint ventures exists.
Most likely ANZ or the analysts whom the Australian spoke to for its story are playing down the Australian banking majors’ chances of buying certain assets, simply because it does not have the deep pockets that its rivals have for any potential bid.
HSBC recently completed a US$18.5 billion rights issue, whilst Standard Chartered recently reported record profits despite the global banking crisis.
Certain assets though within the RBS Asian portfolio almost certainly have ANZ’s name on them.
“ANZ understands it is one of a number of parties involved in the RBS Asia sale process,” ANZ spokesman Paul Edwards said.
ANZ Chief Mike Smith since taking the helm has consistently enunciated a strategy of becoming a super regional bank with 20 per cent of its earnings derived from overseas. The notion that ANZ has suddenly lost interest in a pan Asian banking portfolio is farfetched to say the least.
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Bankers Association Defends Banks Decision Not To Pass On Rate Cuts
An Australian banking lobby has suggested that the nation’s banks should have the freedom to increase interest rates on loans made and hold on to official cuts in interest rate so that profits can be boosted as they face an economy which has slowed down.
The Australian Bankers Association and industry group will probably not get a positive reception to its proposal, after Australian banks that refused to pass on last week’s cut in interest rates came in for criticism from politicians and the general public.
Australian banks especially the Big Four remain profitable especially when they are compared to rivals in Europe and the US. Australian banks have greatly benefited from the Federal deposit guarantee and Sovereign guarantee on wholesale international credit and money markets.
The larger banks have increased market share in mortgage and corporate lending as non bank finance companies exit and international banks hurt by the banking crisis retreat to their own domestic markets.
Critics argue that in light of taxpayer assistance and greater pricing power, Australian banks should be passing on all cuts in official interest rates to their customers, and suggestions to the contrary are being treated with scorn.
The Bankers Association said in its statement that recent reports of lenders profiteering on mortgages were not true and the association highlighted bank interest margins which it said “remain at extremely low levels”. The Association reckons that low margins risks the health of the financial sector.
“An important issue that needs to be publicly debated is whether bank interest margins are currently too low and, if so, how high should they go. In other words, by strengthening a bank’s balance sheets, a bank is effectively taking out insurance so they can continue to operate normally in tough times. The social dislocation caused in the US, UK and Europe from having weak banks has highlighted the critical role that banks play in providing economic and social security,” the ABA said in a statement.
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ANZ Confirms Place In Short List For RBS Asset Sale
Australian banking major ANZ, has reportedly made the short list in the bidding for troubled UK banking giant RBS’s Asian assets. The divestment by RBS likely to fetch it US$1.8 billion, whilst the acquirer will obtain a sophisticated portfolio of Asian franchises across the entire region in fast growing emerging markets, such as India.
Last month certain publications reported that ANZ had engaged the investment banking services of Credit Suisse in order to produce a bid. The speculation being derived from ANZ Chief Mike Smith strategy of creating a “Super Regional” lender, one which derives at least 20 per cent of its earnings from overseas markets.
Unsourced reports have said that RBS has appointed Morgan Stanley as its adviser for the asset sale whilst The Asian Wall Street Journal this week reported that HSBC Holdings and Standard Chartered have also been short listed for the transaction. Standard Chartered reportedly being advised by Goldman Sachs.
An ANZ spokesman Paul Edwards said in a statement was one of several parties invited to participate in the sales process.
“ANZ can confirm it has been invited by the Royal Bank of Scotland Group to participate in the sale process for RBS Asia. ANZ understands it is one of a number of parties involved in the RBS Asia sale process. That process is at an early stage and is subject to a number of commercial and regulatory uncertainties. Exploring the opportunity is consistent with ANZ’s strategy to grow in Asia Pacific and create a super regional bank,”
The unsourced report in Business Day suggested that RBS intends to be flexible about the assets sale, which would allow potential buyers to bid for specific parts of its Asian operations, making any potential deals more attractive to bidders. Certain parts of the Asian franchise of RBS such as its Pakistan unit would be more be more attractive to domestic bidders rather than an international bank.
RBS chief executive Stephen Hester is moving ahead quickly with plans to dispose of non-core businesses. Mr. Hester aims to trim 20 per cent from the bank’s £2 trillion (A$4.11 trillion) balance sheet to help turn the troubled lender around. A wide swath of the bank’s global banking and markets division is expected to be sold in the medium term as RBS retrenches.
The assets, which include operations in China, India, Taiwan, Indonesia and elsewhere, are a portion of the Asian assets acquired by RBS when it led a consortium to buy part of ABN Amro in 2007.
A spokesperson for RBS said the bank is “in active discussions with potential buyers” of its retail and commercial businesses in Asia Pacific, but declined to comment further.
Any deal would substantially increase the Australian bank’s presence in the region. However ANZ is expected to have to bid against larger rivals with much deeper pockets for the assets.
ANZ is most likely to be the preferred bidder for RBS’s India franchise, since the regulator, the Indian central bank would, in most likelihood not sanction a sale of an existing branch network (which RBS runs in India under the ABN brand) to another international bank, with branches in the country
If ANZ was successful in a bid, analysts expect it to launch a multibillion dollar rights issue to help pay for the deal. ANZ has been the only one of the Big Four Australian banks in recent months not to undertake a capital-raising through an institutional share placement as part of a balance-sheet strengthening exercise.
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General Electric To Increase Exposure To Australian Corporate Lending Market
General Electric (GE) says it intends to pick up some of the slack in the Australian corporate lending space which has been left by international banks who have retreated back to their core domestic banking markets in order to recuperate from the wounds inflicted by the global banking crisis.
GE will execute the strategy through its financial services unit GE Capital. The conglomerate says it intends to use its global balance sheet to pick up increased market share in the corporate lending market. Australia’s corporate loan market is a fragile one, and is expecting see a rash of major refinancing as existing loans reach maturity, with international lenders declining to roll them over.
GE Capital in Australia has not had a great year, having to cease its motor financing business and sell its mortgage business Wizard Home Loans to chief rival Aussie Home Loans. GE Capital despite being a unit of formerly triple A rated General Electric, was unable to raise funding on wholesale money markets when those markets froze last year, as a result it could not finance any new loans, and was forced to cease retail lending businesses such as auto loans and sell its home loan business to rivals.
GE Capital’s Australian chief Steve Sargent, says that the non deposit taking financial services company now plans on targeting mid sized corporations that are due to refinance loans, in sectors where the big four Australian banks were not over represented.
“There’s a lot of refinancing out there. My guess is that we are going to be in an environment where there is a shortage of capital for quite some time. In Australia we have very little lending in real estate because it is an area that traditionally the banks play well in. In terms of the potential new lending for us, it is fairly broad. We are looking at some manufacturing and distribution companies, there are broad services companies. We have seen plenty of opportunities and we would look to play in these areas. Energy is one area where we have a lot of experience that we can leverage off.” Mr. Sargent told The Australian.
Last year, GE Capital’s local business increased revenue by 16.8 per cent, making Australia the third-largest market for the diversified financial services group. In February, the company revealed plans to combine GE Money and GE Commercial Finance under the broad capital structure in a bid to reduce costs across the main businesses.
The decision, however, will cost 400 jobs this year, in addition to the 335 job cuts the company announced last year.